Germany has one of the lowest fibre penetration rates in Europe and is under great pressure to catch up.
Telekom Deutschland, Germany’s biggest telco and the second biggest opco in the Deutsche Telekom (DT) group, is offering investors stakes in a vehicle it will create to help fund the urgently needed overhaul of the country’s digital infrastructure.
The move to fibre is long overdue: fibre penetration stood at just 4.9% in the FTTH Council Europe’s latest figures, compared with Spain at 62.2%, or France at 35%. Like BT and some other incumbents across Europe, it preferred to squeeze maximum use out of its copper-based infrastructure for as long as it could – until 2019 in Telekom Deutschland’s case.
This is not acceptable politically given how critical reliable, fast enough and affordable broadband is to the economy, for social cohesion and education.
Three sources close to the matter told Reuters that DT and its adviser Deutsche Bank are targeting investors such as Dutch funds APG and PGGM and Canada’s Brookfield and CDPQ, as well as sovereign wealth funds.
DT’s initial plan is to roll out fibre cables to 4 million households and investors will be offered stakes equivalent to up to half of the project’s equity, the sources said. Further extensions of the network are likely.
Telekom Deutschland has a joint venture, Glasfaser Nordwest, with EWE for north-west Germany, set up in 2019, but is keen to follow the strategy adopted by rivals, such as Spain’s Telefonica: Telefonica Deutschland struck a deal in October 2020 with German insurer Allianz to deliver fibre to 2.2 million German households in a project valued at €5 billion.
How much is involved?
Reuters said DT, Deutsche Bank and the prospective bidders all declined to comment.
However, Reuters says fibre networks are typically financed with 30% equity and 70% debt, and DT is looking for investors to contribute half of the equity with it providing the rest.
At its capital markets day in May, DT Group’s CEO Tim Hoettges underlined the company’s commitment to accelerating the roll-out of fibre in Germany, taking it from 600,000 households last year to 2.5 million in 2024. He said the company plans to invest €2.5 billion a year in fibre infrastructure.
Selling assets to raise cash
At the same time as DT is preparing to invest billions, it needs a hefty sum to take advantage of it option to increase its holding in T-Mobile US to more than 50% from 43% – and is already in debt to the tune of €130 billion.
Hence DT is also looking to sell off assets, starting with T-Mobile Netherlands to cut debt and raise cash for investment in infrastructure. Interestingly, the Netherlands has attracted outside investors to help fund its accelerated fibre roll-out to urban and rural areas.
Potential suitors include infrastructure investors KKR, EQT and Warburg Pincus as well as the French telecoms entrepreneur Xavier Niel, Reuters’ sources said.
Warburg Pincus employs former DT CEO Rene Obermann, and came close to buying the business in 2015.
Once the Netherlands opco is disposed of, DT could well follow so many other European operators and look at options for its towers estate.