Vodafone ties with Altice on €7B German fiber JV
Vodafone Group confirmed details of a long-mooted fiber joint venture (JV) that will enable its German business to follow in the footsteps of local rivals Telekom Deutschland and Telefónica Deutschland.
The new German company – working name: FibreCo – will be 50:50 owned by Vodafone and France-based Altice and plans to build a fiber-to-the-home (FTTH) network covering 7 million homes over a six-year period. The JV aims to invest about €7 billion (US$6.8 billion), of which 70% will be financed by debt. Vodafone expects to receive up to €1.2 billion ($1.17 billion) from Altice in cash.
Around 80% of the network will focus on large housing associations in Vodafone's existing hybrid fiber-coaxial (HFC) cable network footprint that are interested in FTTH upgrades, while the other 20% will cover homes outside Vodafone's current footprint.
In addition, the joint venture will offer wholesale access to all telecoms service providers in Germany, while Vodafone Germany will act as the anchor tenant. The transaction is expected to be completed in the first half of 2023.
Perhaps one of the most surprising elements of the transaction is Vodafone's choice of partner in Germany. Altice, owned by billionaire Patrick Drahi, is also currently the biggest shareholder in the group's UK rival, BT. In addition, Altice owns MEO, which competes with Vodafone in Portugal.
Worth noting here is that Vodafone's two rivals in Germany joined forces with investors rather than industry partners for their fiber JVs. Telefónica's Unsere Grüne Glasfaser was launched in 2020 via a partnership with Allianz, while Telekom established GlasfaserPlus as a JV with Australia's IFM Investors.
However, Vodafone's rationale, as noted by Vodafone Group CEO Nick Read, is that it will be able to tap into Altice's experience and expertise in building FTTH networks in Europe, the Caribbean and the US. Indeed, the German FibreCo has already contracted Altice-owned network construction specialist Geodesia to build the majority of the network.
As expected, the new FTTH network will be complementary to Vodafone Germany's existing HFC network, which currently provides 1Gbit/s connectivity to more than 24 million households. Vodafone still intends to upgrade the HFC network as part of a broad aim to provide 10Gbit/s speeds "over time," deploying next-generation DOCSIS 4.0 technology when it becomes available.
In the meantime, the operator intends to bring fiber connections "closer to all connected homes through 'node splitting' and DOCSIS 3.1 'high split,' which enables download speeds of over 3Gbit/s."
For Vodafone Group's leadership, the Altice deal also represents a further move to strengthen market positions in Europe. In recent months, for example, Vodafone UK confirmed longstanding speculation that it is in talks with UK rival Three UK on a possible combination of their operations; Vodafone Portugal announced its plan to buy the market's fourth convergent player Nowo from MásMóvil; and speculation emerged that the group is seeking a buyer for its Spanish fixed-line network.
While Vodafone has particularly targeted Italy, Portugal, Spain and the UK for improvement through M&A, Germany has been grappling with its own problems. Indeed, Read scolded the operating company for its less than pleasing commercial performance in the year to March 31, 2022, which he blamed on factors including lower footfall at retail outlets and ongoing issues with customer support systems. In June, Vodafone Germany CEO Hannes Ametsreiter was replaced by former Microsoft executive Philippe Rogge.
Yet despite all these recent endeavors to strengthen the different market positions, it seems that some interested parties are still not impressed. Activist investor Cevian, which built a significant but undisclosed stake in Vodafone last year, has been noisily calling for a clean-up of the group's portfolio, demanding the sale of underperforming assets or transformative mergers. According to the Financial Times (paywall applies), Cevian had sold the vast majority of its stake by June, apparently owing to growing skepticism that Vodafone will be able to reverse its sluggish performance.
At the same time, others are still betting that the operator's stock will rise. For instance, French telecom billionaire Xavier Niel acquired a 2.5% stake in the group and is angling for a shake-up, the FT reported.
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— Anne Morris, contributing editor, special to Light Reading