- Read goes off-balance sheet with French telecoms group to build FTTP network passing seven million homes.
- Majority of JV investment will be financed by debt.
- Vodafone could receive as much as €1.2bn in cash from Altice, exceeding its 50% equity contribution.
A London Stock Exchange announcement this morning revealed details of what Vodafone Chief Executive Nick Read has been chasing for months — an off-balance sheet FibreCo joint venture in Germany.
The proposed new FibreCo is a 50:50 arrangement with the buccaneering, expansionist (and highly‑leveraged) Altice, a French telecoms group led by billionaire entrepreneur (and BT Group’s largest shareholder) Patrick Drahi.
The plan is to roll out a spanking new, fibre-to-the-premise (FTTP) network to up to seven million German households over a six-year period.
Vodafone and Altice intend to invest up to €7bn (£6bn), of which 70% is expected to be financed by debt. No news was provided on potential creditors, but the duo emphasised that debt will be “non-recourse to Vodafone and Altice”.
Markets seemed unimpressed by the Altice announcement. Vodafone’s share price barely budged upwards on the news, and underperformed overall FTSE100 performance when TelcoTitans went to press.
Pay-as-you-go
As soon as the transaction closes, expected by 30 September 2023 if all goes to plan, Altice will pay Vodafone an upfront cash payment of €120m.
Drahi’s company is also slated to give Vodafone rollout and performance-related payments: €487m (in aggregate), which kick in after rollout progresses beyond the first 1.5 million homes passed, followed by staggered payments until rollout completion; and an earn-out of up to €595 million (in aggregate) based on FibreCo performance.
Vodafone — again, if all goes swimmingly — could bag as much as much as €1.2bn in cash proceeds from Altice, which, according to the LSE statement, will likely be higher than its share of equity contributions into the FibreCo.
The FibreCo said it will offer wholesale access to all telecommunications service providers, “fully exploit the potential of the infrastructure”, and Vodafone Germany will act as anchor tenant.
Vodafone Germany will have a distinct advantage over wholesale rivals, however. Within FiberCo’s footprint, the operator will be able to market the FTTP network to new customers on an exclusive basis. Vodafone Germany, notably, is not providing the FibreCo with any minimum revenue or volume commitment.
Fibre love-in
Vodafone and Altice went out of their way to talk up each other’s fibre competencies and experience, which, they maintained, are highly complementary.
The FibreCo, they said, will benefit from Vodafone’s “commercial expertise and relationships with housing associations”, while Altice chips in with its “unique [FTTP] rollout, wholesale, and operational expertise”.
Altice already operates similar fibre infrastructure JVs in France, Portugal, and Israel. Geodesia, an Altice subsidiary, has been contracted for the majority of the German FibreCo’s rollout and maintenance.
“ This partnership builds on Vodafone’s significant next generation network with Altice’s industrial expertise and proven fibre-to-the-home construction capabilities enabling us to bring gigabit connectivity to even more customers in Germany. ” — Read.
HFC alive and kicking
Around 80% of FiberCo’s projected footprint, framed as “complementary to Vodafone’s clear upgrade plans for its existing hybrid fibre cable network”, will focus on large housing associations already served by Vodafone’s HFC kit.
FTTP will be offered to HFC customers as an upgrade option, although this will not mean the death of DOCSIS upgrades.
In HFC areas (presumably outside the FibreCo footprint) Vodafone still talked enthusiastically about bringing fibre connections closer to all connected homes through ‘node splitting’ and a DOCSIS 3.1 ‘high split’, which enables download speeds of over 3Gbps.
These upgrade plans, said Vodafone, coupled with next generation technology advances such as DOCSIS 4.0, “provide a path to 10Gbps speeds across our [HFC] network over time”.
Vodafone’s HFC footprint passes 25 million households in Germany, with 24 million able to access download speeds of up to 1Gbps.
Investors want Read to move faster, further
The FibreCo deal in Germany might give Read some ammo to fire back at distractors when he faces analysts on 15 November for Vodafone’s H1 FY22–23 earnings conference call.
Vodafone’s CEO has invariably looked on the backfoot in recent financial presentations, eagerly trying his best to reassure investors that work on M&A, portfolio streamlining, and asset monetisation is diligently going on in the background (but with little evidence to back up his narrative).
Pressure is still mounting, Reports emerged over the weekend that activist investor Cevian Capital “slashed” its stake in Vodafone at the end of June, after building up an undisclosed stake last year. Cevian had wanted Read to up his in-market consolidation game and unlock shareholder value.
According to the Financial Times, Cevian offloaded the majority of its Vodafone stake because of changes in the economic environment and the threat of rising interest rates making it less likely the operator will secure favourable deals.
Last month, French billionaire Xavier Niel, who heads up telecoms group Iliad, bagged a 2.5% stake in Vodafone. In similar vein to Cevian, Niel said in statement there were “opportunities to accelerate… the streamlining of Vodafone’s footprint and the separation of its infrastructure assets”, as well as to improve profitability.
Some M&A morsels to chew on
Read, aside from the new FibreCo in Germany, can point to other M&A activity. Earlier this month, Vodafone Portugal made a market share grab with the agreement of a deal to absorb smaller rival Nowo Communications.
In the UK, Vodafone has confirmed discussions to merge its operations with Three the smallest of the country’s four mobile network operators. The proposed transaction would see Vodafone take a 51% stake in the newly formed entity, with Three UK owners CK Hutchison owning the remaining 49%.
The Group is also particularly busy in the infrastructure market. According to unnamed sources cited by Reuters, Vodafone is also looking to “speed up” talks with financial investors to sell a stake in Vantage Towers, its European tower spinout. Sources said Read was keen to get deal done before 15 November, the day of the H1 call.
Reports also point to near-term sales of residual Indus Towers shares in India, and the prospect of a sale of Vodafone Spain’s fixed-line infrastructure. Cinco Días recently reported that Vodafone has appointed investment bank Evercore to manage a sell-off, although the process was said to be in its early stages.
