Deutsche Telekom (DT) is considering the creation of a new fiber joint venture (JV) in Germany with a yet-to-be-determined private equity partner, aiming to cover as many as 4 million rural locations across the country in the coming years, German newspaper Handelsblatt reported.
Sources told the outlet DT is looking to pump €6 billion (approximately $7 billion) into the effort by 2028. However, it would start with an initial investment of €1 billion, with DT and its partner each contributing half that amount. The operator’s board is set to mull the issue at a meeting next week.
Summarizing why DT would make such a move, Jefferies analysts noted “The advantage is an acceleration of fibre rollout that narrows the opportunity for cherry-picking altnets without affecting FCF [free cash flow]. Notably, DTE's JV is to focus on rural areas where such cherry-picking is currently happening but where DTE would likely not focus its own initial rollout.”
Earlier this year, DT set a goal to serve 10 million households with fiber-to-the-home (FTTH) by 2024. Its interest in using a JV as a vehicle to push that figure further is perhaps unsurprising given the German market is expected to experience significant growth in the coming years. A recent report from the FTTH Council Europe predicted the number of FTTH passings in Germany will rise from 9 million in 2021 to 33 million in 2026, with subscriptions tipped to jump from 3.5 million to 25.5 million over the same period.
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Rival Liberty Global is also looking to capitalize on this opportunity, launching a joint venture with InfraVia Capital Partners last month to deploy FTTH to underserved municipalities there. Telefónica announced a similar move in October 2020, teaming with Allianz to launch a JV targeting delivery of fiber to 2 million homes in Germany.
DT itself is no stranger to joint ventures, and in fact already has one in Germany. In 2020, it launched a fiber JV called Glasfaser Nordwest with utility company EWE focused on providing FTTH to 1.5 million homes and businesses in northwest region of the country. Additionally, in April of this year, the operator’s investment arm Deutsche Telekom Capital Partners teamed with private equity group KKR to launch Open Dutch Fiber, targeting deployments of FTTH in the Netherlands.
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Interestingly, it seems Glasfaser Nordwest recently hit a snag when Germany’s Higher Regional Court in Düsseldorf revoked approval for the JV after receiving complaints from Vodafone expressing concern that the company would hinder competition.
In a translated press release, Glasfaser Nordwest stated the court ruling was “a decision and not a judgement – and also not legally binding.” It added it is continuing its fiber expansion despite the decision while DT and EWE assess their legal options. If the decision is upheld, Glasfaser Nordwest indicated regulators would have a few months to reassess the JV and could implement stricter competition conditions on it.