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October 17, 2022
Vodafone and Altice have announced the creation of a fibre joint venture in Germany that will spend as much as €7 billion on network rollout in the coming years.
The telcos are setting up FibreCo, a 50:50 joint venture tasked with deploying fibre-to-the-home (FTTH) to up to 7 million homes in Germany, and operating the infrastructure on a wholesale basis.
This looks like a great move for Vodafone, in particular. Not only does it secure a highly credible partner to share the physical and financial burden of FTTH rollout in a crucial market, it also brings in some cash from the deal. Vodafone said it will receive up to €1.2 billion in cash proceeds from Altice under the terms of the deal, and that this sum will exceed the value of its equity contributions over time.
Time is something the operators are not sharing a lot of detail on at this stage. We don’t know how long the rollout will take, nor what time period their financial modelling covers. However, we do know that they aim to get the JV over the line in the first half of next year, subject to the usual conditions and regulatory approvals.
We also know the make-up of that €1.2 billion that could come Vodafone’s way. The telco will receive an upfront payment of €120 million at closing, plus additional deferred payments of up to €487 million as the rollout progresses. There is also an earn-out of up to €595 million based on the performance of the JV.
That €7 billion projected investment figure is a great headline-grabber, but it’s worth noting that it is an ‘up to’ number for the operators. That said, it seems to be in the right ballpark for a 7 million homes rollout. 70 percent of it will be financed by debt, incidentally, which will be non-recourse to Vodafone and Altice, which just means it’s secured by collateral.
Vodafone will naturally serve as the anchor tenant on the network and the bulk of the homes to be covered by the rollout – 80 percent, to be exact – will fall within its existing HFC footprint. The final 20 percent will be outside of Vodafone’s footprint, but will focus on “neighbouring homes,” the operators said, which suggests an element of in-fill.
The operators have already contracted engineering and construction company Geodesia, a subsidiary of Altice, to carry out the majority of the network build and maintenance.
In addition to its links with Geodasia, Altice is also talking up the FTTH rollout expertise it brings to the venture.
“We have pioneered fibre joint ventures in France and Portugal, and are thus thrilled to be able to replicate such a feat in Germany with such a partner,” said David Drahi, co-CEO of Altice, in a statement.
The move gives Altice a position in one of Europe’s hottest fibre markets at present. After a slow start, Germany is building out full fibre at pace, with myriad operators and altnets getting in on the act.
Three months ago the German government shared new targets on fibre – it is shooting for 50 percent coverage by 2025 and complete coverage by the end of the decade – and introduced new regulatory measures to make rollouts smoother.
And August saw Liberty Networks, a joint venture between Liberty Global Ventures and InfraVia Capital Partners, break ground on a new fibre network that will operate under the helloFiber brand. That announcement was particularly noteworthy as it effectively heralded Liberty Global’s return to the German fixed network space, albeit as an investor rather than an operator, three years after it sold out.
It was Vodafone that picked up Liberty’s German cable assets when it acquired the Unitymedia cable company and network assets in 2019. It is those assets that will be getting an upgrade via the Altice JV.
The FibreCo venture looks like a win-win for both partners. The only thing to pick holes in here is the rather uninspiring brand name.
Mary has been following developments in the telecoms industry for more than 20 years. She is currently a freelance journalist, having stepped down as editor of Total Telecom in late 2017; her career history also includes three years at CIT Publications (now part of Telegeography) and a stint at Reuters. Mary's key area of focus is on the business of telecoms, looking at operator strategy and financial performance, as well as regulatory developments, spectrum allocation and the like. She holds a Bachelor's degree in modern languages and an MA in Italian language and literature.
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