Fiber optics raises the fury of funds in Spain with operations for more than 5,000 million

This week there was one of the last major operations that telecommunications have experienced in Spain. Telefónica has announced the sale of 45% of its subsidiary Bluevia for 1,021 million euros. The agreement values ​​this company at about 2,500 million, showing the size. It is a recently created company in which Telefónica has incorporated all its rural fiber assets. In the past, it has already advanced its intention to cash in on these infrastructures and has spent the last few months looking for an investment partner.

Finally, those partners have been found in France. Vauban, a fund that emerged from the manager Natixis, and Crédit Agricole have been the entities that have opted for this business. This company is born with 3.5 million customers and it is expected that another 1.5 million homes will be deployed in two years. Bluevia thus retains 13% of the entire Movistar fiber network in Spain.

“This transaction is part of the Telefónica Group’s strategy, which includes, among other objectives, an active portfolio management policy for its businesses and assets, based on value creation.” With these words, Telefónica justified this operation. It is no other matter than trying to make use of all its infrastructure deployment by selling it to third parties. It has closed similar operations in other markets around fiber and in Spain it has already disposed of its telecommunications towers in search of this income that has gone to reduce the company’s debt. Last year it announced the sale of the towers, which were in the Telxius subsidiary, owned by Amancio Ortega.

Also in the fiber optic market, another operation has been closed in recent days that, in reality, is the continuation of a previous one that had been advanced in recent months. Venture capital fund Antin sold two-thirds of its Spanish fiber optic subsidiary Lyntia Networks in a deal that valued the company at €2.5bn. The history of this company goes back to 2014. Then, Naturgy sold Ufinet, which had the fiber optic lines of Unión Fenosa, to the venture capital fund Cinven, for 500 million. Later, in 2018, it passed to Antin, who in recent days has closed the sale of the third part that he still held. Axa, Swiss Life and Morrisson & Co. They are the new owners of the company, which provides wholesale fiber service to other telephone operators.

Also in the fiber optic market it was closed just a month ago. After obtaining all the required approvals, the sale of 49% of Reintel to the venture capital fund KKR. It is a subsidiary of Redeia, formerly Red Eléctrica, which has an extensive fiber optic infrastructure to rent to customers. The operation was closed for 971 million euros last fall, although it was not until a few weeks ago that this agreement was definitively completed.

These three operations have been added to a previous one, which was carried out last fall. The Ardian investment fund acquired Adamo, a company specializing in fiber optics in rural areas. It has some 250,000 clients in some thirty provinces in Spain, although its network would cover a potential of 1.8 million homes. Although the companies did not report the price of the transaction, different media estimated the agreement at around 1,000 million euros. Ardian also announced an agreement in June this year to acquire another telecommunications company, Aire Networks, from the Magnum investment fund, for an amount of around 600 million euros, according to the operator.

All these operations show a trend that is being seen in other countries and that is that investment funds have an appetite for telecommunications infrastructure. This is what has already been seen in the towers, where large telephone companies have been divesting themselves of these assets, either through sales or through IPOs, to the delight of financial investors. They see important returns in this type of asset by renting them to the operators, while they dedicate the profits from these operations to reduce their debts, of a significant size as in the case of Telefónica. This investor appetite has been linked to the need to have a good network, both towers and fiber, to be able to deploy 5G technology to its full extent, to date especially focused on large urban centers.

A sector of three large operators

However, the great operation in this sector is another and of greater significance. A few months ago, after a loud noise of merger in the sector that linked in one way or another three of the four major operators in the country, MásMóvil and Orange announced an agreement to create a new telephony giant in the country that, in some business, you will become the leader. This operation has taken a further step in recent days when both companies have agreed on the final distribution and the conditions of the agreement.

The new company is born with a valuation of 18,600 million euros and each group will have 50% of the company. Both will add revenues of more than 7,600 million euros and will cover 16 million homes with their fiber optic network. In businesses such as mobile telephony, it will even surpass Movistar, the main historical player in the sector. With the operation they aspire to obtain synergies of more than 450 million euros in cost savings from the fourth year after it is closed. This closing of the merger is not expected until the second half of 2023, once the pertinent approvals are received from the authorities. In this case, due to its magnitude, the European Commission will have to intervene, which will have the last word. Once this process is completed, the company plans to go public, although Orange reserves the ability to repurchase its partner’s stake if necessary.

With this agreement, Spain now has a telephone market controlled in some businesses by more than 90% by just three telecommunications companies: Telefónica, Orange-MásMóvil and Vodafone. The rest of the market is divided among dozens of smaller operators. It is a consolidation that the directors of the companies themselves had warmed up both in Spain and in other European countries as a search for greater profitability of the business. The big names in the sector have suffered in recent years from the push of the low-cost business, which has forced them to cut prices and narrow margins.