Telefonica to sign $5.9 bn deal to build fibre-optic network in Germany

Telefonica is in the final stages of negotiating a roughly 5 billion euros or $5.9 billion deal to build a fibre-optic network in Germany, Reuters reported.
Telefonica O2 in Germany
The company’s Telefonica Infrastructure unit is planning to sign a deal with banks and an infrastructure investor by the end of the month.

Banks would lend two-thirds of the money needed to build the fibre-to-the-home (FTTH) network. The rest would be equity, including from an investor now holding exclusive talks with the company.

The roughly 5 billion euro price tag would be a total investment number, with money to flow to the fibre venture in stages once project milestones are reached. Lazard is organizing the transaction.

Chief Operating Officer Angel Vila announced in July that Telefonica would develop fibre networks in under-served areas of Germany that would be built by the new infrastructure unit.

The Spanish group’s local arm, Telefonica Deutschland, is likely to take a passive equity stake and become an anchor customer.

The strategy, if realised, would mark a sharp reversal from the mobile-first plan pursued by Telefonica in Germany, where its local unit operates under the O2 brand and relies on renting capacity to serve broadband customers.

It would pile fresh liabilities on top of a 37 billion euro debt pile that Telefonica has laboured in recent years to reduce.

Telefonica Deutschland just this week extended by 10 years an agreement to rent broadband capacity from market leader Deutsche Telekom that offers highly affordable bitstream rates.

Telefonica Deutschland now ranks fourth behind Deutsche Telekom, Vodafone and 1&1 Drillisch with 2.2 million retail broadband customers – a market share of 6.2 percent, according to the latest study by the VATM industry association.

Moreover, even though there are 5 million available FTTP connections in Germany, only 37 percent are active. That’s symptomatic of widespread reluctance to pay more for gigabit speeds when most households are happy with the bandwidth they already have.

Earlier this year, Telefonica Deutschland sold 10,100 towers and rooftop sites for $1.5 billion to Telxius, an infrastructure unit carved out by the Spanish group, which brought in KKR and Zara owner Amancio Ortega as backers.