Telefónica Infra

The world has changed. The explosion of connectivity and artificial intelligence and our customers’ evolving needs require innovative, intelligent and sustainable technology solutions generating a positive impact on the environment and helping to manage the digital transition.

COVID-19 confirmed an increasing demand for connectivity and the necessity to speed up the development of high quality ultrabroadband across the globe, positioning telecom infrastructure as a must for our society. At the same time, high capital intensity in the telco industry commands an increasingly demanding allocation of capital, driving the re-thinking of traditional infrastructure operating models.

Telefónica Infra objectives and value levers

Telefonica Infra is a fully owned unit of Telefónica Group and operates as a portfolio manager, owning and rotating stakes in infrastructure vehicles alongside financial investors.

In November 2019, a new Telefonica was designed to continue to be at the forefront of the new challenges posed by today’s changing world. As part of the five strategic pillars announced, Telefonica Infra was created in order to exploit the value of the unique portfolio of infrastructure assets and capabilities across the Group, partnering with financial investors.

Telefónica Infra focuses on value creation through 3 key levers :

• optimising existing infrastructure assets through dedicated management and increased focus,
• selectively monetising infrastructure assets, and
• partnering with leading financial investors to co-invest in growth opportunities (through flexible partnership structures and business models).

In this way, Telefónica Infra meets its objectives[NSS2]  which include improving Telefónica’s business units’ competitive position (acting as a facilitator to accelerate deployments in selected areas of operations and to improve returns through more efficient deployment models), crystallising the value of Telefónica’s infrastructure assets and capabilities, and capturing future value upside through the stakes held in infrastructure vehicles.

Key developments since its creation

Since its creation, Telefónica Infra has focused on (i) creating strategic optionality for Telxius enabling value crystallisation as evidenced by the recent sale of Telxius Towers to ATC and (ii) pursuing value creation opportunities in other asset categories, especially in Fibre and Data centers.

Telefónica Infra reached an agreement with Allianz to create an open-access wholesale operator to deploy fibre in underserved areas in Germany, an agreement with CDPQ to operate an open-access wholesale operator to deploy fibre in selected cities in Brazil and an agreement with Asterion to become a co-shareholder in Nabiax, its data center platform.

With both fibre vehicles fully operational (FiBrasil in Brazil and UGG in Germany), Telefónica Infra plays an active role in delivering more inclusive connectivity, by increasingly boosting penetration of high-quality, state-of-the-art FTTH accesses.

In the long term, Telefónica Infra has further optionality to explore other asset categories and service models.  Telefónica Infra will selectively participate in vehicles to develop certain asset classes in selected countries, together with financial partners. Opportunities will be analysed on an ad-hoc basis, evaluating market opportunity together with Telefónica’s assets and capabilities and investors’ interest to co-invest and partner with us.

Our portfolio

Telefónica Infra’s investment portfolio currently comprises a 25% stake in FiBrasil, a 40% stake in Unsere Grüne Glasfaser (UGG), a minority stake in Nabiax and a 50.01% stake in Telxius Telecom.

FiBrasil

• Mix of brownfield and greenfield: FiBrasil started already with a portfolio of c 1.8m premises passed (including 1.6m contributed by Vivo at an implied valuation of 16.5x OIBDA 2020 PF and 0.2m added through the acquisition of Fiberty 1)
• Leveraging on expertise from Telefónica Group to deploy and operate high speed FTTH networks
• FiBrasil aims to provide services to multiple Internet Service Providers across its footprint, starting with ViVo as its first contracted client
• JV Agreement signed in March 2021, closing in July 2021 and the company is fully operational.  Announced and closed the acquisition of Fiberty 1 (former Phoenix Fiber) in August 2021
• Co control governance structure (50% CDPQ, 50% Telefónica Group) with phased and ringfenced financing
• CDPQ is investing a total of up to R$1.8 billion in this joint venture, comprising both primary and secondary payments. CDPQ’s projected capital contributions and the debentures issued by FiBrasil in August 2021 (R$550 million) provide a fully funded business plan to accomplish the company’s deployment targets. Subsequent leverage will be raised if needed.

Unsere Grüne Glasfaser

• Target to reach > 2mill premises passed over 6yrs, pure greenfield, creating a fibre network of over 50,000 kms
• Leveraging on technical capabilities and expertise from Telefónica Group to deploy and operate high speed FTTH networks
• JV Agreement signed in October 2020, approvals received in December 2020, started operations early 2021
• Construction started in February 2021, 1st retail customer connected in June 2021
• MOUs signed with municipalities representing >100k premises (Sep-2021)
• Co control governance structure (50 % Allianz, 50% Telefónica Group) with phased and ringfenced financing
• initial debt facilities for a total of €1.65 billion (7-year, non-recourse senior debt) which is sufficient to meet UGG’s liquidity needs over the first three years of the project, with built-in flexibility for further facilities thereafter to be raised in future alongside the new financing in order to complete the roll-out

Nabiax

• Transaction structured in 2 tranches: 1st Closing (Spain DCs) executed in July 2021, Telefónica Infra now holds a 13.9% stake in Nabiax, which will become 20% once the 2nd Closing (Chile DCs) is executed.
• Nabiax has presence in 7 countries: Spain, Argentina, Brazil, Chile, United States, Mexico, and Peru.
• Nabiax’s Data Center Network covers a surface > 24,000 sqm, and offers an IT power of 35,2MW, which has the capability of scaling 6-fold, up to 180 MW in total. These infrastructures are hyperconnected by fibre networks and most of them have the Uptime Institute’s Tier III & IV certification.

Telxius

• Telxius also delivers a wide-ranging portfolio of capacity, colocation and security services.
• Scalable growth platform with premium infrastructure and high top-line and cash-flow visibility.
• Ownership structure: 50.01% Telefónica, 40% KKR, 9.99% Pontegadea.