Telefonica and Vodafone finalise FibreCo plan

The announcement, which came alongside the publication of Telefonica's third quarter results on Thursday, formalises a plan first shared by the telcos back in July. They have now hammered out the final details, which don't seem to have changed much from those sketched out three months ago.

Telefonica and Vodafone confirmed they will create a new entity, currently known as FibreCo, that will cover 3.6 million premises with full fibre and serve a customer base of 1.4 million. Telefonica will take a 63% stake in the new entity and Vodafone 37%.

The arrangement is subject to regulatory approvals, which the operators said they expect to receive early next year. Assuming they get the go-ahead, that means the business will be set up sooner rather than later, and the way will then be open for them to bring in another investor.

The companies had nothing further to say on that point, aside from confirming that it is still on the cards and that Telefonica will retain a majority stake in FibreCo.

Previously the telcos noted that Vodafone would keep a 10% stake in FibreCo, but did not reiterate that figure this time around, so something could have changed in their thinking over the past few months. In September Spain's El Economista reported that the operators had hired investment banks Barclays and BBVA to manage the sale of a 40% stake in the venture, putting a price tag of around €800 million on the shares.

Although Telefonica and Vodafone are playing their cards close to their chests, that sort of share split – there or thereabouts – still seems like a fairly likely outcome, but we'll probably have to wait for the new year to find out for sure.

On the subject of regulatory approvals, there's no real reason to believe that Telefonica and Vodafone will struggle to get the green light for FibreCo, but the transaction is not wholly straightforward. It is part of a broader fibre network consolidation move in Spain, which the authorities are doubtless keeping close tabs on.

As well as agreeing this partnership with Telefonica – and formalising a new wholesale deal with the incumbent, incidentally – Vodafone Spain has also brokered a similar deal with MasOrange to create a fibre network JV that will cover 11.5 million premises. They too will bring in a third-party investor to take a 40% stake, leaving 50% with MasOrange and 10% with Vodafone.

Only Vodafone will have a foot in both camps, presuming the investor in each case is different, and the size of its stake in each presumably helps to ease anti-competition concerns. But there will be plenty of fine-toothed combing from the regulators. The fact that Spain is a fairly mature fibre market should help.

On which note, Telefonica's results for the third quarter and the first nine months of the year showed that the telco had 6 million fixed broadband accesses at the end of September, of which 5.6 million were FTTH; fibre net adds in Q3 came in at 60,000. Continued fibre growth helped the company record its best overall quarterly net adds in six years (see graphic below) and to confirm a return to earnings growth in the domestic market. Telefonica grew EBITDA by 1% year-on-year in Spain in the June-September quarter to €1.2 billion. Its top line increased by the same amount.

At group level, the operator reported weakness at its Hispam business, particularly in Peru where an impairment charge hit overall profitability. Group revenue and earnings both slid – to €10 billion and just shy of €3 billion respectively – and, according to Reuters, missed analysts' expectations. The telco's shares took a hit when the numbers came out.

Nonetheless, Telefonica was able to confirm its full-year guidance. And naturally, it focused on the positives.

"Our GPS action plan is ambitious and continues to deliver results to move in the right direction and consolidate profitable growth," said Telefónica CEO José María Álvarez-Pallete.

"In the first nine months of the year, in a global context of uncertainties, Telefónica has obtained a net income of almost one billion euros and reiterates all its financial targets for the full year," he said. "In addition, we confirm our shareholder remuneration for 2024."

Got to keep those shareholders happy. That's what the GPS, its current strategic plan, is all about.