Opposite to the world’s movements, Telefônica in Brazil plans to expand its fiber network business
11/07/2022
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Christian Gebara — Foto: Silvia Costanti / Valor
The Spanish group Telefónica has been intensifying a series of sales of towers and participation in its fiber optic networks through the subsidiaries it owns in countries in Europe and Latin America. In the Brazilian market, where it controls Telefônica Brasil, owner of Vivo, the fiber business tends to go in the opposite direction. Instead of selling, the operator is willing to buy fiber assets that cross its path.
“The natural trend is to reduce network overlap, and we will see how it will be done,” Christian Gebara, CEO of Telefônica Brasil, told Valor. The CEO agrees with the sector expert’s forecast that the expansion of optical fiber infrastructure will reach a depletion among the largest operators. But for the executive, this is likely to happen in the short term. This means that the mergers and acquisitions that have been stirring up the more than 10,000 small internet access providers are already starting to “knock on the door” of the big players. And Telefonica is not on the selling end, warns the executive.
“Our strategy is well defined. The consolidation opportunity for us has to be very positive and cannot overlap with my network,” said Mr. Gebara about possible acquisition targets. “I can’t speak for other players, but I believe that some of them may be interested [in selling], because competing with Vivo, with a network of this size, with a channel and a brand with the strength that we have, with the possibility of convergence, with the whole portfolio of digital services, may not be easy.”
In the global market, dominant operators first separated services from infrastructure, creating independent or neutral networks – totally isonomic – to operate wholesale. Then they attracted investors.
“Each group company has a fiber strategy, the one in Brazil is different,” explains Mr. Gebara. “If you look today at the ‘picture’ of 2024, a network of ours reaching 29 million homes, 22 million will be Vivo’s own network and the rest through a neutral network. So, much of our network will continue. Right now, the plan is for it to be 100% Vivo-owned.”
By separating its infrastructure, and creating FiBrasil, Telefônica guaranteed its presence in the fiber market on different fronts. It invests through FiBrasil, a partnership between Telefônica Brasil and Telefonica Infra, from Spain, with 25% each; and the Canadian fund CDPQ, with 50%. In addition, it invests directly with Vivo. Finally, it has a partnership with American Tower in Minas Gerais.
From the total number of homes where Telefônica has already made fiber available to be hired by providers and sell the FTTH service (fiber to the home) to consumers, 6.4 million are operations through FiBrasil and the rest through Vivo, while the agreement with American Tower includes 1 million homes.
A leader in its partnerships, Vivo determines the expansion strategy and still has an exclusivity period before the network capacity is sold to competitors. “It’s hard to see an operator like ours that has control as we do,” says Mr. Gebara, comparing its strategy not only with local rivals but also with peers in the group.
Local competition also accelerates. IHS is TIM Brasil’s partner in the neutral network company I-Systems. Oi sold control of its fiber asset, V.tal, to funds from BTG Pactual and GlobeNet Cabos Submarinos. Compared to the other incumbents Grupo Claro Brasil is the one that is the furthest behind in fiber deployment, besides not having admitted partners so far.
Selling a slice of the network was a way for the companies to raise the necessary funds for the heavy investments in the expansion of the fiber and 5G networks, as well as to reduce the high debts. In the earnings report for January to September 2022, released on Thursday, Telefónica group reported net debt of 28.9billion euros. In Brazil, the net debt was at R$13.5 billion, including the leasing effect.
When presenting Vivo’s group earnings reports in a teleconference for investors on Friday, the head of operations, Ángel Vilá, highlighted an “excellent set of results, growing two digits in accesses and main financial indicators.” He added: “In Brazil, our unmatched operational and financial performance has helped us strengthen our leadership position in the market.”
*By Ivone Santana — São Paulo