The wait for the postponed consolidation of the operators continues. If it occurs, it would have at least two axes: it would crystallize the promises that 5G has not yet fulfilled, while it would prevent the intense deployment of fiber optics from ending up causing a harmful bubble for business. The state of the infrastructures will be the touchstone of both trends.
It has always been very expensive to deploy network infrastructures and just as expensive to operate them. It is even more so now, for operators whose capital investments have been earning diminishing returns for years. In Europe, the average revenue growth of telecommunications companies is estimated at 0.5%, something that of course has an explanation, but in other regions it fluctuates between 3% and 3.5%. Service revenues are insufficient, and it is no relief that network traffic is growing steadily.
In this scenario, the operating companies have made a forced turn: from the omnipotence of yesteryear they retain some assets that are necessary to provide services, but need to be updated. The formula to face the costs lies in sharing them with financial partners endowed with patience. This was the central issue of a conversation with Guillermo Ansaldo, director of Telefónica Infra. It is, in every way, an exemplary story of the winds that are blowing in this industry forced to invest even in uncertainty.
This subsidiary of the Telefónica group, created in 2019 to manage the infrastructure portfolio in four of the countries where it operates (Germany, the United Kingdom and Brazil, as well as Spain), has had to be built "in order to comply with a business that has to be doubly compatible: with the objectives of the countries in which we operate, which obviously differ, and at the same time with the interests of our partners, different depending on the case”.
With these premises, there is no small complexity that Ansaldo faces. He came to this position after eight years as director of global resources at Telefónica. From the outset, it has had to manage four types of assets, which two years later were reduced to three due to the sale of 31,000 mobile phone towers from the subsidiary Telxius in six countries –excluding those in the United Kingdom– to the American American Tower for 7,700 millions of euros.
It seemed imperative to ask the interviewee for the reasons for the disinvestment in this pillar of his mobile telephony strategy. Something that, by the way, other European operators are doing. His answer: thanks to this, the Telefónica group was able to capitalize investments of many years with capital gains. “At that time (2021), the multiples at which these assets were being sold were very high, up to 30 times the OIBA (operating profit before taxes), while the multiple of an operating company does not exceed five or six times (…). We were presented with an unrepeatable opportunity, which allowed us to cut the group's debt”.
Three categories of assets remain in Telefónica Infra's portfolio: submarine cables, data centers and fiber optics (urban and rural). In each one, a model (or more than one) has been followed when admitting members. Cables, a historical activity of Telefónica, were absorbed by Telxius, a subsidiary of Infra. "They needed a conversion in keeping with the times and technology -he sums up- too onerous if you intend to undertake it with your own capital". This is how the "new Telefónica" promised by José María Álvarez-Pallete conceived the convenience of seeking financial partners: first, a fund from the KKR manager, from which its 40% would later be repurchased, assumed by Pontegadea, the financial vehicle of Amancio Ortega.
With data centers, the group has followed a two-way path. In 2019 it was seen appropriate to sell eleven of his property to the Asterion fund, which for this purpose established the company Nabiax. Two years later, this business – which is both real estate and technological – was exultant enough to cede four facilities that had not been part of the first operation, in exchange for a 20% stake in Nabiax, the company that controls a total fourteen in seven countries.
Residential fiber optics (FTTH) is the most complicated chapter of those handled by Infra. The situations are different in each of the countries, for territorial and/or regulatory reasons. The differences between urban and rural areas weigh heavily: in some places there is a risk of a bubble and in others small companies have emerged that at some point will have to consolidate.
In Germany, with a peculiar market structure, fiber deployments are very expensive, which is why a very stable financial partner, the Allianz insurance company, has been necessary to cover towns of 2,000 to 5,000 inhabitants without having to deal with Deutsche Telekom. In Brazil, to finance the deployment from scratch in smaller cities, "you have to demonstrate a potential critical mass, something that the Canadian pension fund CDPQ, our partner in the country, has understood very well." In the United Kingdom, the O2/Telefónica alliance with VirginMedia began in December in intermediate cities, where there is less competition from Openreach, a BT brand.
And in Spain? Urban fiber tends to saturation in many places: “We have little left to reach the size we are looking for: the goal is five million homes and by the end of 2022 we already had 3.7 million. In this plan, we have created a wholesale provider, Bluevia, to which two specialized French funds have joined”.
