Vodafone and Altice get EU approval for German FTTH venture

The European Commission has given the green light to plans by Vodafone and Altice to spend billions of euros rolling out a joint fibre-to-the-home infrastructure in Germany.

Brussels’ approval was essentially a rubber stamp. The new business needed to satisfy certain merger rules because it is a JV, but the Commission took just a few weeks after the companies lodged their application to authorise it. However, it comes at an interesting time in the German fibre market.

When Vodafone and Altice announced their plan to come together to create FibreCo, a 50:50 venture that has pledged to spend up to €7 billion rolling out FTTH, in October last year, the German market looked pretty hot. But times have changed since then.

Last autumn we were still pretty excited about the raft of fibre builders springing up in Germany, including the high profile helloFiber brand, backed by Liberty Global Ventures and InfraVia Capital Partners. HelloFiber broke ground in August, but its network rollout turned out to be pretty short lived; last month its parent company Liberty Networks Germany revealed it would not invest further in the market, citing macro-economic factors – the cost of capital being a big one – and a shortage of construction capacity. Essentially, it was unable to make the financials work.

And it’s not the only one. A few short weeks later Glasfaser Direkt filed an application to open insolvency proceedings after its major investor, KKR-owned John Laing group, also elected to cease investment in German fibre. Operations are continuing at Glasfaser Direkt, which is making all the right noises about finding a new investor, but there are question marks over its ability to do so.

All of which means that Vodafone and Altice’s JV will be operating in a different climate to the one they perhaps envisaged when they were hammering out the details of their partnership last summer.

However, while FibreCo’s multi-billion-euro investment might not go as far as its parent companies had expected, the company does have an advantage over many other fibre builders.

Vodafone has a strong existing footprint in the German broadband market and the FTTH rollout essentially serves as an upgrade of its cable network, infrastructure it picked up when it acquired Liberty Global’s Unitymedia in 2018. The JV plans to cover 7 million homes, 80% of which fall within Vodafone’s current HFC footprint, with the remaining 20% covering neighbouring premises.

This is not the same as a truly greenfield FTTH deployment. As such, while the JV will face many of the same challenges as other fibre builders, it is much less of a tough sell from an investor point of view. And the scale involved should help the numbers to stack up too.

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