UK emergency services network operator Airwave in talks with potential buyers

Operator said to be in early talks with a number of ‘credible parties’, although any buyer would have to take on the company’s £1.7bn debt liability

UK emergency services network operator Airwave in talks with potential buyers

Airwave Solutions, which runs the UK’s emergency services communications network, is up for sale, according to a report by Sky News last week (11 June 2015). Airwave Solutions Ltd is owned by Guardian Digital Communications Ltd (GDCL), which in turn is wholly owned by the Australian investment firm Macquarie Group’s Macquarie European Infrastructure Fund 2 (MEIF II).

Sources close to the talks confirmed to Wireless that GDCL has been approached by a ‘number of credible parties potentially interested in investing in Airwave’. Wireless understands that discussions are at an early stage and there is no certainty that they will lead to a transaction.

Sky News speculated that Airwave was in discussions ‘with a range of potential buyers including Motorola Solutions and Hong Kong Telecom. Vodafone is also said to have been examining a possible bid’, it claimed.

Airwave’s contracts with various emergency services organisations begin to run out in 2016 with the last ones ending in 2020. In February this year, the company was eliminated from the bidding for the Lot 3 (Mobile Services) main area network part of the Government’s £1.2bn Emergency Services Network (ESN), contract, which will replace the TETRA narrowband Airwave network with a 4G LTE broadband service.

Like Airwave, Vodafone was eliminated from the bidding for Lot 3 of ESN in February, as was UK Broadband Networks, which is wholly owned by PCCW, the holding company of Hong Kong Telecom.

Airwave is in a tricky position as its elimination from ESN means its continued future is now in doubt beyond 2020. The radio equipment is not up to date with the latest TETRA technology and while some of its radio sites may be of value, many are in fact owned by Arqiva (itself 25% owned by Macquarie Group).

It is also saddled with considerable debt. In March 2014, Bloomberg reported that GDCL won the backing of a UK court to extend £1.73 billion of loans used to buy the Airwave network. It got approval to push back the maturity of the debt, due by 31 March 2014, by three years with an option for a further two years extension.

Guardian Digital has a £1.48 billion term loan A and £250 million term loan B, according to the company’s court filing. It also has a £50 million revolving credit facility, according to data compiled by Bloomberg.

The ESN contract
Currently, some 250,000 police, fire and ambulance staff use the Airwave network, along with a further 50,000 other users. Airwave has contracts with individual police forces, fire brigades and ambulance trusts.

The first of these contracts will expire in 2016 and the last in 2020. The Government is currently in the process of tendering for a replacement network, the £1.2bn Emergency Services Network (ESN) based on 4G LTE technology, which is due to begin operating in 2017.

In contrast to the original tender, the Government packaged ESN up into four separate lots and shortlisted five companies to bid for each. However, the high risks involved put many bidders off and a number refused to submit a tender.

In January 2015, the Government decided to drop Lot 4 Extension Services to the main network, for which only one bidder, Arqiva, was prepared to submit a bid, believing it could be covered by Lot 3.

Only HP Enterprise Services UK and Motorola Solutions submitted a bid for Lot 2 User Services (the management of the network and its services and applications) with Airwave, Astrium and CGI IT UK all declining to take the risk.

Four bidders are still left in the bidding for Lot 1 Delivery Partner Services to submit best and final offers this month: Atkins, KBR, Lockheed Martin and Mott MacDonald.

However, Lot 3 – the main network has turned into a shambles following the decision two weeks ago by Telefonica UK (O2) not to submit a final bid – this leaves EE as the sole bidder for the contract. The other bidders, Vodafone, Airwave and UK Broadband Networks were eliminated in February.

Airwave history
Airwave was established in 2000 by what was then BT Group's mobile phone division, BT Cellnet, (later O2 and then Telefónica UK) to bid for the contract to fund, design, build, operate and maintain a dedicated communications network based on the Terrestrial Trunked Radio (TETRA) two-way radio standard for the UK’s emergency services.

In April 2007, Airwave was acquired by two Macquarie Group investment funds, Macquarie European Infrastructure Fund II (MEIF II - a €4.6 billion wholesale fund that invests in businesses that provide an essential service to the community) and Macquarie CPPIB Communications Pty Ltd, for $3.8 billion (£1.9 billion). Macquarie also controls Thames Water and National Car Parks under the MEIF II fund.

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