Infrastrutture Wireless Italiane SpA

MIL:INW

Earnings Call Transcript 2021-Q2

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the INWIT Second Quarter 2021 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Ruffini, Head of Investor Relations. Please go ahead, sir.

[Fabio Ruffini, executive]

Thank you. Good evening, everyone. Thank you for taking the time to connect to INWIT's second quarter 2021 results presentation. With me today are Giovanni Ferigo, our Chief Executive Officer; and Diego Galli, our Chief Financial Officer.

So we'll begin. Please allow me to draw your attention to the safe harbor statement on Page 2. As usual, the presentation will be followed by a Q&A session. Over to you, Giovanni.

[Giovanni Ferigo, executive]

Thank you, Fabio, and welcome, everyone. It has been a busy last 3 months. We delivered a solid set of financial results in Q2 as we continued to make progress on an operational perspectives. Beginning with financials, Q2 showed a clear acceleration. Organic revenues increased by 4.5% year-on-year. EBITDAaL growth was up 6.9% with expanding margins. Recurring free cash flow increased by 15%. Industrial KPIs continued to grow.

We added new tenants. We deployed new macro sites. We had the new DAS remote units, and continued to optimize ground leases. The pace of new tenant addition is stable quarter-on-quarter, while discussion on the remedies process continues.

We also closed a very important industrial agreement, entering a new market segment for coverage of highway infrastructure, investing in existing DAS, providing connectivity to about 1,000 kilometers of tunnels across Italy. This confirms our leadership in innovation capabilities, positioning us in additional market segments with interesting prospects from the coming deals.

More in the short-term, we confirm our expectation for the year. The time effects of new PoPs is mitigated by the other actions on revenues and lower ground leases.

Based on Q2 results, we expect revenue and EBITDA on the low end of the guidance range, and EBITDAaL and free cash flow on the high end of the guidance range for 2021.

So these figures and the new agreement announced reinforce our structural growth story and outlook, helped by the positive external channel in Italy after the simplification decrees and the positive investment cycle driven by Next Generation EU.

Let's now move to KPIs on Page 4. Anchors continued to show a positive trend, growing quarter-on-quarter. TIM and Vodafone make progress in the optimization, expansion and densification of their network, in line with MSA growth expectations.

In line with our guidance, Q2 also recorded an acceleration in the number of new sites. The pace of growth has changed. We have grown from about 70 new sites in 2020 to 130 in just this quarter, and more than 400 in 2021, adding another growth engine.

New tenants from other parties were 290 in the quarter. We made progress with MNOs in size below 50,000 people -- 55,000, people, where the remedies don't apply. We updated the commercial agreement with Iliad and added more PoPs than the previous quarter, a trend which will continue in Q3 and Q4.

The review of the remedies process is ongoing, limiting the matching of demand and offering towns above 55,000 people in a fast and material manner. We are following the discussion around the remedies, which continue with the involvement of all parties, and are hopeful that an agreement will be found, so that we can unlock the strong demand we see for our sites.

There is a clear match between our specific location and market needs. So again, we feel this is a timing and process topic.

We also experienced relatively softer fixed wireless demand for specific customer situation, which we consider temporary, also linked to the timing effects of Next Generation European funds.

Fixed wireless access demand continues to be a key driver. We have a strong pipeline of significant projects and expect to be able to share even more good news in the short-term.

Turning to Slide 5, an important element of our business model is our ability to optimize returns on our assets. INWIT's tenancy ratio is among the highest in the industry and continues to grow, adding recurring revenue stream to our asset base. Plus, there is a potential for improvement in ground lease costs.

With INWIT's real estate team, we have a strong track record and see further opportunities ahead. So we continue to deliver material expansion for margins per tower. Over the past year, we created value for more than EUR 1,000 [per house] in terms of additional EBITDAaL.

Let's now look at the new services on Page 6, starting with DAS. We keep adding remote units and securing new locations in key verticals, including public administration, healthcare and transportation.

In the quarter, we added 350 DAS remote units. At the same time, our regular discussion with operators created an opportunity to accelerate investments in a very interesting market segment, a first time for INWIT and a competitive advantage.

We secured a portfolio of DAS system from Vodafone, covering important location on about 1,000 kilometers of motorways and road tunnels. We will be managing dedicated coverage of a critical transportation infrastructure. We will invest to renovate and upgrade the assets, providing mobile connectivity and coverage, a key vertical which will benefit from Next Generation EU funds.

As you know, coverage of dedicated transportation infrastructure is one of the market drivers for the tower sector in Italy, giving the opportunity to increase network quality. This project with a EUR 70 million investment and MSA with Vodafone allows us to cover a new market segment on assets which are very difficult to replicate and add a significant potential for new tenants.

There will be a positive financial impact from day 1, with a growth trajectory that will reach run rate and execute our commercial plan. In the medium-term, this adds visibility to DAS revenues and their contribution to our business plan, positioning us to lead -- us as a leading player in the new segment.

Moving to the next slide for an update on the Next Generation European funds, EU funds, we discussed how our Next Generation EU funds are a tailwind to our business, improving the investment cycle in wireless infrastructure and macro sites, speeding up development of DAS.

Today, we would like to provide more details around the process and the specific application to INWIT. On macro sites, there are EUR 7 million in terms of 5G and broadband. More in practice, the plan Italy 5G, the plan Italy at 1 Giga are particularly relevant for us. There will be more resources for 5G [indiscernible] us as we reach more towns, more quickly. Industry 4.0 and digitalization investments will speed up the development of DAS since more mobile connectivity will be needed. So how do we expect to access the Next Generation European funds? Via call for tenders, taking part in a competitive bidding process and through public-private partnership by signing an agreement with a public institution and promoting a specific project. So directly or through our clients, we expect Next Generation EU will support our outlook.

In terms of timing, the next milestone is toward the end of the year and into 2022 when we will start applying for these projects. Most of the funds will be deployed by 2023 and projects need to be completed by 2026.

Again, we feel it's important to highlight the consistencies of our core assets and strategic focus with Next Generation EU funds. Our new commercial agreement on transport and infrastructure confirms this.

With this, I hand it over to Diego. Thank you. Please, Diego.

[Diego Galli, executive]

Thank you, Giovanni, and good evening, everyone. Our second quarter results show that we are delivering revenue organic growth improvement to 4.5% year-on-year, up from 1% a year ago and 3.2% last quarter. And we made continued progress in profitability and cash flow generation.

Last quarter, we presented clear programs to accelerate revenue growth. And today, we can see the initial benefit of those programs. Organic revenue run rate improved by nearly EUR 3 million quarter-on-quarter at about EUR 193 million.

New Points of Presence continue to add to the top line and further acceleration is expected in the second half of the year. Organic growth of 4.5% year-on-year was mostly driven by the MSA revenues.

OLOs were up as well, despite some residual impact from Q1 2021 termination. New services are up more than 50% year-on-year and new pickup further pace in the coming quarters, also supported by our investment in dedicated highway coverage.

Current visibility confirms key sources of further revenue acceleration in line with 2021 guidance. Q2 has some Q1 new PoPs turning into revenues, benefits from new sites, DAS revenue ramp up and improvements in timing between new tenants' contractualization and revenues.

Turning to margins, ground lease costs continued to come down. This supported EBITDA growth of 7% year-on-year and EBITDA margin expansion to 66%, a record high for INWIT, up 2 percentage points year-on-year and 1 percentage point on the previous quarter. In short, a solid set of financials with positive trends in main indicators.

A quick comment on net income, up as compared with the previous quarter due to higher interest due to a one-off non-cash items and lower taxes, as I will detail more in the next slide.

Taxes have been an additional lever to be more efficient, together with ground leases and the optimization of our financial structure. In the second quarter, we finalized the 2 tax schemes announced in the past March and November, paying the upfront component of both for a total of EUR 334 million. The financial impacts are confirmed. The 2 programs will create EUR 350 million total NPV or EUR 210 million in the business plan horizon, 2022 to 2026.

When finalizing the process, we also took advantage of an opportunity to have the initial P&L benefit in 2021. Cash flow benefits are confirmed, as previously announced. They will begin in 2022 and materially reduce our tax cash-outs.

As an additional guidance, please consider the following. We expect an effective tax rate in the high single-digit next year, rising to the mid-teens in 2026.

In terms of total cash-out in 2022 and 2023, we expect to be paying between EUR 20 million and EUR 30 million, going up to more than EUR 70 million in 2026. From 2027 to 2039, both P&L and cash benefits will be reduced as only 1 of the 2 tax schemes will still be operational.

Let us now move to cash flow on Page 10. Cash flow generation continued to be solid in the second quarter of 2021, with EUR 91 million recurring free cash flow, up 15% year-on-year. Total recurring free cash flow in the first 6 months of the year was EUR 184 million, supporting our 2021 guidance in the high end of the range, EUR 350 million to EUR 365 million -- sorry, EUR 355 million to EUR 365 million.

As we shared with you back in May, net working capital improved and stood at EUR 28 million positive in Q2 or EUR 10 million positive in the first half of the year.

Recurring CapEx continued to be limited and its costs were further contained. Cash conversion was strong at 52%, confirming the structural feature of our business model. INWIT's cash flow is highly predictable and committed for 50% of total growth.

Let me also take the opportunity to remind you that our business plan target of EUR 700 million recurring free cash flow by 2026 has a combination of top line expansion and lease cost efficiency.

More on the financial structure on Slide 11. Net financial position in Q2 is a result of organic cash flow generation and the 2 material cash outlays, a dividend payment for EUR 284 million and prepayment for tax scheme for EUR 334 million.

Net debt increased to about EUR 4.1 billion, including the IFRS 16 liabilities, or 5.9x leverage, in line with our expectations. This peak in leverage is temporary and we will go back to our deleveraging path beginning in next quarter.

Our financial structure recently optimized was further fine-tuned with a loan by the European Investment Bank supporting our growth CapEx. As indicated in our investment plan, the EBITDA growth will progressively reduce leverage and create about EUR 1 billion worth of resources by 2023, optionality to capture further growth opportunities or additional shareholder remuneration.

Summing up, Q2 financials reflect solid growth. Our programs to accelerate revenues, already visible this quarter, will continue to support us in the second half of the year, where further acceleration and more organic growth is needed.

With this, back to Giovanni on Slide 12.

[Giovanni Ferigo, executive]

Thank you, Diego. I would like to provide an update on our sustainability plan, something that we will do regularly twice a year.

We set ambitious sustainability targets in November, including to be carbon-neutral by 2025 as we support all operators in the digitalization of Italy.

The 5th, 6th month of 2021 recorded tangible results in a number of areas. We engaged sustainability rating agency proactively and already obtained upgrade by Sustainalytics and FTSE Russell. We approved a 3-quarter engagement policy, and diversity and inclusion policy. We reached more than 60 hours of training on average per employee. We approved a climate strategy and made progress toward an higher use of renewable electricity now at 75%.

On the innovation front, we have advanced studies on IoT application of our road monitoring with important highway operators. We cover 30 hospitals with our DAS system, supported fixed wireless players in extending coverage to scarcely populated areas and supported mobile connectivity for school and smaller communities. Our ESG engagement with investors is more and more frequent and we look forward to continuing the dialogue on a regular basis.

Let me now share how everything we have shared with you reflects in our guidance on Slide 13. We are on a clear growth trajectory, supported by an attractive combination of factors: strong demand, 5G rollout and densification, better coverage of the Italian landscape via fixed wireless access, and dedicated coverage for transport infrastructure.

The visibility at this point in the year allows us to reiterate the guidance for 2021. We expect revenues and EBITDA at the lower end of the range, mainly due to timing of PoPs growth. New tenancies grew materially over the past few quarters. Demand is solid and volume can still be improved. We expect EBITDAaL up and recurring free cash flow at the high end of the guidance range for the year on back of cost and net working capital optimizations.

We remain positive on our medium-term outlook, supported by the rollout of new sites, demand of new PoPs, needs for dedicated infrastructure coverage, less bureaucracy thanks to the simplification decree, and more investment with Next Generation EU funds.

So in conclusion, in slide 14, INWIT showed progress on several fronts so far this year. We added more than 2,400 new tenants, 160 new sites, 750 DAS remote units, and completed about 900 actions of land renegotiation and buyout.

In the second quarter, organic revenue growth stepped up to 4.5% and EBITDAaL margin reached a record high of 66%. We expect that these good trends to accelerate further in the second half of the year as implied by our full year guidance.

We reached an important new agreement in a market segment with good prospects, dedicated highway coverage. The tower industry evolves and presents new opportunities, and we are committed to continuing innovating and to maintain our leadership.

With this, we thank you and we will now take your questions.

[Operator]

[Operator Instructions] The first question from the English conference call is from Sam McHugh with Exane.

[Samuel McHugh, analyst]

2 if I can. You've always talked about having neutral working capital over the medium term. So I just wonder, if you could quantify how much positive working capital you're thinking about for free cash flow this year and whether we should expect that to unwind next year?

And then secondly just on the Vodafone acquisition, I was hoping you might be able to give us some specifics on the year 1 numbers. And then what you mean by an investment plan in terms of rough quantum of investment? I mean, whether the EUR 10 million revenue is just on 1 anchor tenant or whether that does assume multiple tenants?

[Diego Galli, executive]

So working capital, we do expect working capital to be on a run rate neutral or slightly positive going forward. And on the acquisition of the highway and tunnel, we -- the EUR 10 million run rate implies 2 tenants, is -- we will achieve the run rate in a couple of years. The -- this is a strategic asset for us. We do see it honestly as a booster of revenue and business acceleration, but also really an asset for strategic developments.

And in terms of investments, will be an investment to refresh, upgrade and for some of the assets to make them available for more tenants. We -- it's going to be, how can I say, any kind of investment that together with the EUR 70 million is part of our CapEx budget as shared in our business plan. You may remember that in our business plan, CapEx for DAS are broadly 25% of the total plan.

[Samuel McHugh, analyst]

That's included in your existing CapEx budget, that's very helpful.

[Operator]

The next question is from Fabio Pavan with Mediobanca.

[Fabio Pavan, analyst]

2 questions. The first one is on the guidance. You were saying mid-term is confirmed, so can you elaborate a little bit more on that? In the light of '21 updated guidance, what we should expect for revenues, EBITDA and free cash flow when looking at 2023?

And the second question is a follow-up on what you were mentioning related to Iliad. If I understood properly, you've managed to sign -- to reach an agreement in small centers, while on the remedies side still there are discussion ongoing. What is the reason why you continue to be confident that an agreement could be reached?

[Giovanni Ferigo, executive]

Starting from the positive quarter, no, where increased revenues of 4.5%. This is, let me say, an engine that will -- let me say, will help to us to go -- to maintain our guidance. That is another, let me say, pillar of our growth as we show in the presentation. And so as I said, we confirm the guidance for -- in the low end for the revenues for this year. And for the medium term, we think that the -- let me say, the DAS, the European fund projects and Iliad, that will come again to -- in the cities over 55,000 inhabitants, will permit to us to maintain our medium-term guidance. Okay? Other thing, Diego?

[Diego Galli, executive]

Iliad.

[Giovanni Ferigo, executive]

The second one is Iliad. Okay, Iliad -- okay. Starting from a good news, in the municipalities under 55 -- 35,000 inhabitants, we deployed more than 100 hospitalities. This is -- so we unlocked, let me say, this segment of the market. Over, there is an issue of, let me say, anti-trust authority in Bruxelles. The discussion is continuing. But we are, at the moment, totally focused at under 55,000 inhabitants. And there are important agreements with Iliad to continue in the rollout of hospitalities in this segment that -- it's a really good deal for us has been unlocked. Okay?

[Diego Galli, executive]

Yes. And if I may complement with regard to the first point related to the guidance for the mid-term, let me complement from a financial perspective. I'd like to underline that we have achieved 4.5% year-on-year growth despite the limited contribution from an important client.

So far, we have activated 2 important growth levers, common grid and fixed wireless access. In the last quarter, we added the growth lever of coming from new sites. And in the next, we will see also the acceleration in DAS.

So by the year-end, all the growth levers will be activated and they will have potential to achieve further speeds. Then we remain positive as Giovanni said about the evolution of the remedies, which will add up to the current trajectory.

Also, let me highlight that for the other items in the cost and cash items -- lease costs, tax and interest -- we are performing in line, if not better and faster than originally planned, which is further supporting our recurring free cash flow generation.

[Operator]

The next question is from Ranjit Roshan with Deutsche Bank.

[Roshan Ranjit, analyst]

2 questions for me, please. Just looking at the new OLO PoPs, we've seen a slowdown in the adds this quarter and I think you mentioned some timing effects there. You also mentioned already greater contribution from Iliad this quarter than we did in Q1. So is this less FWA contribution in Q2 versus Q1 and is it possible to get the mix of adds this quarter? I think previously it was heavily skewed towards FWA, so are we moving towards the MNO split now?

And secondly, there has been a lot of news flow over the last couple of weeks around the emission limits. Could you just outline the timeframe as to when the upcoming decisions in parliament are due and what your expectation of the higher limit is, given that I think it's been tabled now for 5 or 6 years? Are we actually going to get an increase this year?

[Giovanni Ferigo, executive]

Yes, I confirm that the fixed wireless demand is, let me say, is important. But at the moment, there is a temporary issue because due to the, let me say, [EN-R]or Next Generation funds, the fixed wireless operator are, let me say, redesigning their programs. So we hope in the second part of the year, we will realize all the hospitalities. So we are positive in this.

About EMF, okay, the main demand has been postponed by the government that was followed of other, let me say, management. So within the end of the year, probably there will be a decision in this, let me say, very important argument. But I remember, underlying that, our plan has been built without -- with the actual limits. And so every good news could be an opportunity for us.

Regarding the fixed wireless demand, there is an important order book, let me say, from an operator that we can, let me say, in the few next days we will show the reason there is also disagreement that can confirm that I said previously, that we are positive in the fixed wireless access demand in our sites, under 55,000 inhabitants, okay? Because that is not -- okay, where remedies don't apply. Okay?

[Roshan Ranjit, analyst]

So just to follow-up. So on the 290 at this quarter, you said that FWA is, I guess, temporarily delayed, given the new generation fund. So are we talking, I don't know, 75% of those are from MNOs, is that fair, this quarter?

[Diego Galli, executive]

Honestly, we don't provide this kind of split. There are also commercial implications. I think that from a qualitative point of view, what you said is spot on.

[Operator]

The next question is from Georgios Ierodiaconou with Citi.

[Georgios Ierodiaconou, analyst]

It's just a couple of follow-ups. The first one is just to understand the situation with Iliad in the event that we don't get any changes to the electromagnetic emissions. Can you give us an idea of the progress you describe that you are seeing in the temporary areas, and whether you think by the end of the year regardless of what we get in terms of emissions, there could be a resolution there? If not, do you mind just specifying when do you expect that to be resolved?

And my second question is on the lease optimization that clearly is running ahead of plan this year. I'm just curious whether you have any thoughts about the mid-term potential. Do you -- are you considering perhaps committing more capital towards ground lease optimization? Are you seeing more opportunities than what you envisaged maybe 12 months ago? Or is it just a case of executing faster than expected?

[Diego Galli, executive]

Yes. Let me start from the second one on ground lease costs, where actually, yes, we are doing very, very well and it's faster than expected. And it's going well on both, the ground lease cost buyout -- ground buyout as well as the renegotiation. And honestly, renegotiations are doing very, very well, so -- with no capital implications.

So this is going, honestly, better and it's starting to give us the confidence that we can achieve faster and lower cost than originally envisaged.

[Giovanni Ferigo, executive]

About the Iliad question, okay, I'd like to underline that we unlocked together with Iliad the segment of the market of the sites, let me say, under 55,000 inhabitants. We are pushing a lot. We are not waiting for, let me say, political erosion of electromagnetic sales limit, because there is not a correlation between the 2 arguments in our business plan. But let me say, if the limit will increase, it will be a good opportunity for us on top of our business plan.

[Georgios Ierodiaconou, analyst]

If I could ask just a clarification on that, in the previous conference call, you mentioned that there are certain actions you are trying to course in order to improve the situation. Have you seen any progress on that front? Do you feel we're closer to finding a resolution? Or is that still something which is eluding you for the time being?

[Giovanni Ferigo, executive]

Under 55,000 inhabitants, the remedies don't apply. So we are hand-free, let me say. So it's a commercial issue that we can work with Iliad to share the best position, the best location, the best price and so on and we are going on. Over 55,000 inhabitants, there is, let me say, the remedies apply, apply in a very strong way. So we are waiting that, let me say, this issue will solve, because there is some, let me say, the technical, commercial, processing teams that today have not been solved. But let me say, we hope that in few months, this issue definitely will permit to us to realize an interesting number of hospitalities in these municipalities that are very important, on top of our business plan.

[Operator]

The next question is from Simon Coles with Barclays.

[Simon Coles, analyst]

Just on sort of developmental CapEx, so at the business plan last year, you said EUR 600 million cumulative, let's say EUR 60 million of that is maintenance. And I think you said a broadly flat CapEx profile as well, so that would sort of suggest maybe EUR 180 million per year for developmental CapEx. You're running quite -- way below that. So I was just wondering if you could give us some more color on how you think CapEx will be spent this year? Should we still expect it to be in the same sort of buckets? I think you hinted just now that 25% on small cells is still valid, but is that over 3 years or is that valid in each individual year as well? Just trying to get a better picture on the mix of CapEx and how much you might actually spend this year would be very useful.

[Diego Galli, executive]

Yes. Actually, the current-year CapEx will be impacted by the purchasing of the term loans we have just announced. So that will be a booster of revenues, but also will bring forward some CapEx.

Overall on DAS, yes, the current view is broadly 1/4 of the total CapEx we expect probably to be in line or slightly higher, considering the opportunity that we see also related to the recovery funds.

[Simon Coles, analyst]

And is it still the same sort of outlook on land buyout of 25%? But I think you just said renegotiations are going pretty well, so maybe it sounds like that could be better.

[Diego Galli, executive]

On land buyout, it's an interesting point, because it's a mix of the -- I mean, the speed of investment is a mix of different components, in particular mix of opportunities. And honestly, we don't want to push too hard also for not somehow inflating the market. But considering how well the renegotiations are going, I would say that probably the numbers that we shared on 1/4 of the total investment is the cap, let me say, the highest level. Maybe we can be a little bit lower.

[Simon Coles, analyst]

And then sort of EUR 200 million a year that was implied for total CapEx, is that still valid, because it seems like you're running way below that?

[Diego Galli, executive]

Yes. Yes, they are.

[Operator]

Your next question is from Andrew Lee with Goldman Sachs.

[Andrew Lee, analyst]

Just 2 questions from me. Firstly was on the -- was -- they're both around the points of presence associated with you guiding to the lower end of the range on revenue growth. So firstly, just to clarify, the points -- the lower points of presence is purely related to the Iliad kind of logjam on the larger densities cities, right, towns. And so given that that, I guess, will inevitably be resolved -- it has to be resolved, I guess, it's just a phasing issue.

And then the second question is just on the transition -- or translation between adding KPIs and revenues coming through, which you'd also highlighted had been slowed due to public administration and also slower -- you guys struggling to process so many KPIs. Have you accelerated that now back up to full speed or are we still working on that?

[Giovanni Ferigo, executive]

On the first one, yes, basically you are right in most of the, what I'd call it, guess. But let me say the further step-up is related to Iliad. And with regard to the second question -- yes, on the timing, we are improving, actually. We do see -- I mean, month-by-month, we do see an improvement in the time to translate new contracts into revenues. And also the -- both the simplification decrees will help. So we have got positive view on that and -- as well as the new sites, which will translate in additional revenue faster.

[Operator]

The next question is from Jakob Bluestone with Credit Suisse.

[Jakob Bluestone, analyst]

I've got 2 fairly quick ones. Firstly, just in terms of your guidance, can you just confirm if you're assuming any material contribution from the Vodafone transaction? I think it closes in Q3, Q4. So just -- I think it's -- I mean, maybe is too small to matter, but if you can just sort of clarify that?

And then just secondly, I think you said you had 100 Iliad remedy sites in -- that in cities of above 35,000 because that's where the remedies apply. So if you could just clarify what that 100 Iliad tenancies refer to?

[Diego Galli, executive]

Starting from the first one, yes, we will see some impact of the purchase of the assets of the tunnels already in the second half of the year.

[Giovanni Ferigo, executive]

And the bulk of the hospitalities, under 55,000 inhabitants for Iliad, I can absolutely confirm the numbers, 100 in this quarter and we hope to accelerate in the others. Okay?

[Jakob Bluestone, analyst]

And if I can just ask 2 follow-ups actually, just on the remedy side. So I think in year 1, you were meant to make 900 available and then year 2, 700 available. Is that roughly what in theory is available, putting the sort of roadblocks to the side?

And then just secondly just in terms of the size of the Vodafone acquisition contribution, I mean, is it just that because it's EUR 10 million a year and it's sort of sticking an extra quarter before it can be ramped up, it's just too small to make a material difference, even if you include it? So if you can maybe just put a number on it?

[Giovanni Ferigo, executive]

Yes. On the tunnel or the highways top line contribution, there is a run rate. So we'll take some quarters to reach the run rate. And clearly, the speed honestly will depend also on how good we will be in adding in the -- okay, let's say, a modernization process and adding the second tenant. But yes, it will take some few quarters.

[Fabio Ruffini, executive]

Sorry, Jakob, your first question, if you can repeat, please? I think we missed your first question.

[Jakob Bluestone, analyst]

It was just, how many sites are actually available for Iliad as opposed to how many have they signed up for? Is it around 1,500 or --?

[Giovanni Ferigo, executive]

Okay. About the remedies, we are totally compliant with the remedies. And when you say up to date, we published more than 750 sites, where we can opt Iliad. And so let me say, we are going on waiting for, let me say, Iliad decision about the sites that we are proposing through the monitoring trustee register.

[Operator]

The next question is from Stefano Gamberini with Equita SIM.

[Stefano Gamberini, analyst]

3 questions also from my side. First of all regarding what is your contingency plan in the case that the postponement of this agreement with Iliad will continue, considering your target of 7.8% advert -- revenue growth to 2023? And how you can substitute this trend regarding Iliad?

The second regarding the new sites. How many new sites will be installed by year-end? And if you can also supply us a target for next year?

And then I have a question regarding the electromagnetic pollution limits. If the government will increase this limit, you underline that you have advantages. On the other side, if I'm not wrong, there are some MNOs underlining that they could save a lot of investment in the space for 5G rollout. So could you help me to understand where is the advantage on your side considering that keeping the current limits probably you should put more sites for MNOs in term to 5G rollout?

[Diego Galli, executive]

As I said before, we did achieve 4.5% growth in this quarter with a limited contribution from Iliad. And so far, we have -- the growth is coming basically from the common grid and fixed wireless access, which have been most of our new tenants in the last [few] quarters.

Then starting from this quarter, we'll start seeing the contribution of new sites, which have been 130 in the quarter and will be 400 by year-end, which will add significant additional growth lever together with DAS acceleration. DAS acceleration further boosted by the acquisition of the tunnels from Vodafone.

So gradually, we are at a point where we achieved 4.5% with, how can I say it, our growth levers not yet at full speed, actually. There is a material speed that's actually still to come, as I said, from new sites in DAS acceleration. And we do expect also, as Giovanni mentioned, a very good contribution from fixed wireless access related to specific commercial agreements we are discussing.

So we do see the growth engines coming through one after the other, fueling our growth, adding layers. And that's where our confidence comes from in terms of achieving the targets of growth for the next years.

The positive expectation about Iliad, above 35,000 is honestly something that will add, that we will welcome, it will add up an additional layer to the multiples that I -- we have already activated, and as I said, will display their full, how can I say, energy power force in the next quarters.

[Giovanni Ferigo, executive]

About EMF, EMF limits, okay. If these limits will be relaxed or increased, for us is -- let me say, it will be an acceleration in the plan because, let me say, the 5G rollout by operators will accelerate strongly, is less CapEx because we can opt more, let me say, MNOs in our towers with less CapEx. So the EBITDAaL of single towers increases finally. And there is, let me say, a long-term where the data consumption and -- will, let me say, relax the new PoPs due to the capacity issue. And -- so let me say, we're continuing this right trajectory.

So acceleration of 5G rollout, less CapEx, more EBITDAaL margin and long-term, let me say, increase of new sites densification due to the capacity needs.

[Operator]

The next question is from Luigi Minerva with HSBC.

[Luigi Minerva, analyst]

Just 2 questions, which are more on the medium term outlook, if I may. The first one is about the impact from the recovery fund. And I noticed that the language of the policymakers is kind of switching from achieving full digitalization for a certain amount of the population to actually achieving digitalization for the full geography. So I'm wondering, if this change in emphasis from population coverage targets to geography coverage targets can have positive implications? I imagine it will have. So I'm just wondering if you have thought about it and if you can share some thoughts about this and if you can see some impact on your medium-term potential growth?

The second question is on Open RAN. I think both your anchor tenants are starting to experiment and testing with Open RAN. So again, if I can ask you your thoughts about it and the implications for your business model from Open RAN?

[Giovanni Ferigo, executive]

I think from the second question, Open RAN, sure, we are ready. I want to underline that yet today, small cell and DAS are active, let me say, elements of the network that we are, let me say, managing and we are ready because today we are doing something interesting in terms of radio frequency design for DAS environment. And -- okay, we are ready.

The future, say, the mobile operator will -- let me say, the border of the mobile network operator will be the data center, where will be concentrated the intelligence of the network. And outside with Open RAN architecture will be probably outsourced to tower-cos. We are ready. We are directing a team of radio frequency engineers.

So let me say, in terms of future, I think that the operator -- the Open RAN solution is a greenfield, let me say, opportunity. For the legacy operator, let me say, they need I think 2 years to start this process. So I -- personally, I see not before 2023 the starting of, let me say, engagement of the tower-cos in managing Open RAN architecture.

About EN-R or European funds, okay, let me say, this help us a lot because, let me say, there will be dedicated investments in a super-wide area, where no operator will invest. And so this is a good opportunity for us. Because in terms of our [indiscernible] let me say, interpretation, we will be able to give this kind of solution to all the mobile operators in fixed or wireless access that want to commercialize the service in these very, very remote areas. So let me say, very, very -- really more efficient, where we want to be the actor -- the principal actor. Okay?

[Luigi Minerva, analyst]

And if I may Giovanni, on this last point, is it part of your kind of long-term outlook or you see upside?

[Giovanni Ferigo, executive]

Yes. Let me say, we are studying, we are proposing the project to the Ministry. We start to analyzing the tenders of the solution. It's too early to, let me say, to answer to your question.

We start the process. We are in the process. And let me say, within end of the year, the sales process will be presented and approved. And so I can answer better to your question.

[Operator]

The next question is from Ben Rickett with New Street Research.

[Ben Rickett, analyst]

I just had a quick follow-up on the previous question around active RAN. I was wondering, have you already started discussing this with your anchor tenants, the prospect of transferring ownership of your active RAN? And are they receptive to that concept?

And then a second question, again, just coming back to the remedies. I'm just trying to understand what happens if an agreement isn't reached on the remedies. So there is a commitment of 900 sites by October; if that isn't met, does the European Commission become involved again? Are there penalties and who are those payable by?

[Giovanni Ferigo, executive]

Starting from the first question, okay, we are not already in touch with operator -- mobile operators that -- they start to experiment this kind of solution. But let me say, the architecture is very, very close to the SRAN that we are using for that solution. So we are studying. We are testing some, let me say, processes. And at the right moment, we will discuss with the anchor tenants this incredible opportunity for tower-co.

Regarding the remedies, if the issue will not be solved, the authorities will decide for a formal, let me say, decision about Iliad requests, our answer and so on. So I think that -- I hope to solve the issue before, but the process implies that there will be a final, let me say, decision by the European Antitrust Authority.

[Ben Rickett, analyst]

And would that happen in October at the first deadline?

[Giovanni Ferigo, executive]

Really, I don't know. I cannot answer, okay?

[Operator]

The next question is from Giorgio Tavolini with Intermonte.

[Giorgio Tavolini, analyst]

Regarding Iliad, you unlocked the market in the cities with less than 35,000 inhabitants. I was wondering just to clear any risk, if there is any risk limiting in your ability to ask Iliad coming from the remedies that Cellnex agreed with the Italian Antitrust Authority in the context of the acquisition of the Hutchison towers? So I understand you have a superior quality of the locations, but do you see any risk? And in particular, do you see the risk that Cellnex experience the same delays that you are experiencing with this kind of regulatory remedies in this less than 35,000 inhabitant cities?

The second question is on the other band mobile operator. I saw in the presentation you are citing the IoT sensors. What is the level of revenues do they contribute to your top line and in terms of, let's say, rental fees? And who are the clients, what level of demand are you seeing from these clients?

[Giovanni Ferigo, executive]

Okay. Iliad and let me say, Cellnex. The remedies for us are over 55,000 inhabitants. For Cellnex, it's under 50,000 -- 55,000 inhabitants. So let me say, we are not being affected by any factors, let me say, in terms of more acquisition by Cellnex.

Under 55,000 inhabitants, where we are hand-free, let me say. We are doing a lot of -- as I said, a lot of hospitalities. And let me say, there is no conflict with Cellnex in terms of hospitalities that they do for us. So let me say, no impact.

About the IoT, okay, let me say, the IoT is very important because in the EN-R and in the European funds, there is a special chapter for this. We are experimenting a lot of this. The most important are with the municipalities about energy. And -- okay, it's at the moment, our proof-of-concept, but we are totally convinced that is an open street that we have to provide. And I'm convinced that, as I said in the presentation, the monitoring of the infrastructure that are roadway, highway, train and so on will be an important source of revenues in the few years in the future.

[Operator]

The next question is from Andrea Devita with Banca Akros.

[Andrea Devita, analyst]

Just a couple of ones, please. The first is again on the tunnel antenna deal. The idea is whether you consider these as a potential new business line with other opportunities coming in the future? So -- to be clear, are there any other portfolio coming from ways or from railways or other infrastructure-related antennas that would be interesting for you, so what is this portfolio compared to the total market in terms of the share?

And the second question is again on other ancillary potential business. We are seeing the railway, for example, considering hyper-scale and edge data center. So I would like to understand whether you are exploring the edge -- computing edge data center as well as a potential business for you?

[Giovanni Ferigo, executive]

Starting from the second question, railway, that is represented big data centers, concentrated, I think, in 4, 5 cities. We are -- our, let me say, targets are, let me say, distributed mean data center in thousand of, let me say, sites. The most important we consider about the -- in the future 5,000 of this, where there will be the possibility to habilitate the new services that need low latency because, let me say, the edge computing will offer 5G vertical services. And so let me say, it's totally different model and we are totally convinced that will be an interesting solution for the mobile operators.

For the tunnels, okay, is a new segment for us. We are totally, let me say, convinced that we will increase the tenancy ratio, we will upgrade the technical situation that we buy. And let me say, it is a -- it will be, sorry, a relevant source of revenues, will permit to habilitate the -- not only the IoT ward, but the evolution of the monitoring of the infrastructure.

And let me say, in second part, we can opt digital audio broadcasting. For example, this is a huge problem for the -- right now. As you know, all the new cars that will be built from this year must have the DAB solution. And so let me say, we are totally convinced and the transportation segment, that will be totally covered by the EN-R and the European funds.

[Andrea Devita, analyst]

Yes. So the main question is, if there are other, so is it to the first step? So I understand you will invest to upgrade and improve the assets you acquired, but if there are other asset of this kind, for example, railways, this is -- so if it is just a, let's say, first step to buy other antennas on this kind of transportation infrastructure?

[Giovanni Ferigo, executive]

Again, the train -- sorry.

[Andrea Devita, analyst]

No, I don't have any idea of the share, so these antennas, how they compare with the total available in Italy, to be clear? So is Vodafone a duopoly to Cellnex? So Cellnex entered in Italy, acquiring initially the Italian Autostrade antenna, so this was the first deal 7 years ago, if I remember well. So I don't know, are there other antennas of railways or regional streets or something like that?

[Giovanni Ferigo, executive]

Okay. Starting -- let me say, train, yes, we have, let me say, a design ready to cover all the high-speed train, let me say…

[Diego Galli, executive]

Corridor.

[Giovanni Ferigo, executive]

Corridor -- sorry, the corridors. This is absolutely our, let me say, target. It's a large market. There are a lot of tenants in Italy that has, let me say, security issue because a tunnel not covered could be a problem for the security -- for the safety of the person. So if there is market, we are looking for, we are analyzing other opportunities and we are ready. We want to be, let me say, present and to increase, upgrade all these implants is we are interested in.

[Operator]

[Operator Instructions] Mr. Ruffini, gentlemen, there are no more questions registered at this time.

[Fabio Ruffini, executive]

Thank you, and thanks everyone for connecting. Have a good evening.

[Giovanni Ferigo, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.