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Telefonica JV spends $360 million on Chile fibre network

Entel Chile has announced the sale of its fibre network to a Telefonica/KKR joint venture, bringing in the best part of US$360 million.

There’s nothing unusual about a telecoms operator in any part of the world offloading infrastructure assets, particularly in the current climate; it’s a tried and tested method of raising money. But it’s a little unusual for one telco to offload these types of assets to another, especially when the buyer is a market competitor.

OnNet Fibra, which is 60% owned by KKR, the remainder being in the hands of Telefonica, has agreed to pay US$358 million for Entel’s fibre-to-the-home (FTTH) network, which currently passes 1.2 million homes and businesses. When merged with OnNet Fibra’s assets, the infrastructure will cover 3.9 million premises, and the firms have pledged to increase coverage to 4.3 million by 2024, a commitment that may well be designed to help them get the green light from regulators.

Telefonica spun off its Chilean fibre network business and sold a majority stake to KKR in early 2021 – the deal closed mid-year – in a transaction that valued it at $1 billion. At the time the business, then known as InfraCo, covered 2 million homes, but Telefonica insisted it would extend the network to 3.5 million, more than half of the households in the country, by 2022.

The implication was, of course, that it would do this by building out more fibre, but the past couple of years have seen it increase coverage by just 700,000 premises.

The Entel deal will enable it to meet that target, albeit not in the way we had expected…and not quite on time. The parties involved expect the deal to close in the first half of 2023, subject to regulatory approvals and other closing conditions.

Fibre currently accounts for just over half of Chile’s fixed Internet connections, according to statistics from regulator Subtel. The country had 2.43 million FTTX connections at the end of 2021, after fairly rapid growth for the previous couple of years. Nonetheless, Telefonica, Entel and their competitors still have some work to do to persuade customers to hook up to the infrastructure they are rolling out.

The deal does not mean Entel is getting out of the fibre game. Under the terms of the transaction it will continue to offer services to end-users over the network. Essentially, OnNet Fibra bulks up as a wholesaler and picks up a pretty big retail customer in the process. The deal should help drive the rollout of fibre in Chile, bringing with it the advantages of greater scale, but it will be down to the regulator to decide whether it constitutes sufficient competition.

There could also be a similar deal on the cards in neighbouring Peru, where Entel says it is still considering its options for its FTTH business.

Interestingly, reports emerged this summer that Telefonica is looking to replicate its Chilean fibre model in Peru. Reuters cited Spain’s Expansion as claiming that the telco is in talks to sell a majority stake in its Peruvian fibre business to KKR, although as yet there has been nothing official on that story.

It’s not much of a stretch to suggest that Entel and Telefonica could well be talking to one another about fibre north of the border too.

 

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