Telenet, Fluvius form FTTH partnership
July 19, 2022
Telenet, the Liberty Global subsidiary, and Fluvius System Operator have entered into an agreement to create what they refer to as “the network of the future” in Flanders, the Flemish Region of Belgium.
The companies will incorporate a new, independent self-funding infrastructure company, NetCo, of which Telenet will own 66.8 per cent and Fluvius 33.2 per cent. Combining both companies’ fixed network assets, NetCo will invest in the gradual evolution of its current hybrid fibre coaxial (HFC) network into a Fibre-to-the-Home (FTTH) network, targeting 78 per cent of their combined footprint in Flanders by 2038, either through building directly or with external partners, or through wholesale arrangements. NetCo will also focus on upgrading the existing hybrid fibre coaxial (HFC) network using state-of-the-art DOCSIS technology where FTTH will not be deployed.
Key elements of the agreement:
- A fully-funded, 5x levered NetCo will result in improved ownership economics for Telenet as opposed to the current rental arrangement whereby Telenet pays to access the Fluvius network representing 1/3 of the Telenet operating footprint today.
- NetCo will operate an open access network with a market-leading utilisation rate that’s positioned to attract additional strategic and/or financial partners.
- More than 50 per cent of homes passed in NetCo’s footprint are very economic to pass with FTTH at an estimated cost per premise of around €650.
- The investment will be financed from NetCo’s robust cash flow as well as Telenet’s €745 million of proceeds from its recent tower divestment, with no dependency on obtaining incremental external financing.
- At closing, Telenet’s pro forma net debt will decrease by around €500 million as Fluvius’s long-term emphyteutic lease will cease to exist. However, in order to maintain Telenet’s consolidated net total leverage of around 4x through the CAPEX-intense build period, its dividend will be reset to a floor of €1 effective immediately. After the build period, CAPEX intensity is expected to materially decrease and return to normalised historical levels, leading to substantial Adjusted Free Cash Flow growth and providing scope for significantly higher shareholder disbursements.
Telenet’s partnership with Fluvius is the latest development in the ongoing evolution of Liberty Global’s 10 Gigabit network strategies.
Mike Fries, CEO, Liberty Global, commented: “This partnership with Fluvius places Telenet firmly in the driver’s seat in the Belgian market, and cements NetCo as the undisputed kingmaker with a combined retail and wholesale market share close to 60 per cent. The partnership also highlights the effectiveness of our network strategies. By utilising a combination of the best network upgrade technologies available, we are firmly on the road to offering up to 10 gig broadband speeds in all our markets. Almost 100 per cent of Liberty Global’s networks already offer gigabit speeds to customers today, with VodafoneZiggo due to complete its work to deliver gigabit speeds across its entire network by the end of this year. Our ongoing network development strategies will enable us to extend our leadership positions in each of our core European markets.”