Telefónica’s top management have given a strong indication that we can expect more fibre infrastructure deals from the telco in Latin America.
Fresh from announcing the sale of 60% of its fibre assets in Chile to investment group KKR, a deal that valued the business at US$1 billion, the Spanish operator revealed that it is looking at various types of fibre deal elsewhere.
At its full-year results announcement – at which it talked up debt reduction and cash-generation, while the headlines largely covered a hefty earnings decline and dividend cut – Telefónica shared more details of its plan to spin off its fibre assets in Brazil to create a neutral wholesale operator. The new entity will be known, at least for now, as FiBrasil, and will start life with a fibre-to-the-home (FTTH) network covering 1.6 million premises, carved out of the telco’s Brazilian subsidiary Vivo; its target will be to pass 5.5 million premises over the next four years.
Telefónica said it is in advanced negotiations with a leading international financial investor, but did not add further details. Earlier this week Bloomberg’s sources reported that Telefónica is discussing such a deal with Canadian pension fund Caisse de Depot et Placement du Quebec (CDPQ) and said a deal could come as early as this week, but as of Thursday’s results presentation Telefónica did not have much to say on the matter.
However, chief operating officer Angel Vila Boix was a bit more forthcoming about Telefónica’s plans for Brazil in general.
FiBrasil will help Telefónica to address the second tier of towns and cities in Brazil, he explained. “Tier one is going to be developed with our own capex,” he said, and will be 100% owned by Telefónica Brasil. The telco will address tier two areas either through deals with fibre owners, “like American Tower,” or via FiBrasil. In the latter case, Telefónica would have co-control with a partner; the partner would own a 50% stake, while Telefónica’s 50% would be split equally between Telefónica Brasil and its Telefónica Infra unit, Vila Boix said.
The structure of the potential FiBrasil deal – or indeed deals – mirrors Telefónica’s approach in Germany, where it recently teamed up with insurance company Allianz in a €5 billion joint venture to extend fibre to rural and semi-rural areas. The big difference, Vila Boix noted, is that while the German plan is greenfield, there is a brownfield component in Brazil in the form of the premises hived off from Vivo.
And Telefónica’s plans to team up on fibre are not limited to Brazil.
“There could be other fibre deals in Hispam,” Vila Boix said. Fibre penetration is still low in Latin America, or Hispam, so “there are opportunities to create value in the region,” he said.
The promise of the LatAm fibre market will also help Telefónica with its debt-reduction efforts. At the end of 2020 its net financial debt stood at €35.2 billion, down €2.5 billion over the year, with a further €9 billion in debt-reduction from inorganic initiatives still to be realised; these include proceeds from its UK joint venture, the sale of Telxius Towers; the disposal of operations in Costa Rica and the fibre deal in Chile.
The Chile deal will shave €0.4 billion from the debt pile, Telefónica reiterated.
A few more transactions like that certainly wouldn’t hurt.