Vodafone Germany to invest extra Euro 2 billion in gigabit broadband

Deutsche Telekom AG (NYSE: DT) executives have repeatedly insisted that copper-based technologies such as vectoring can support Germany’s broadband needs, but the operator has continued to lose market share to higher-speed cable networks, of which Vodafone Germany’s is now the biggest.

Under the plans announced Monday morning, Vodafone Germany is to spend another €200 million ($240 million) on upgrading the cable infrastructure that connects about 12.6 million homes, between €1.4 billion ($1.7 billion) and €1.6 billion ($1.9 billion) to address business customers and a further €200-400 million ($240-481 million) on extending gigabit-speed networks into rural parts of the country.

Vodafone Germany has unveiled plans to invest €2 billion by the end of 2021 on Gigabit fibre broadband services.

The Giga-Business initiative builds on the partnership agreement announced in July 2017 with Deutsche Glasfaser to reach 19 of Düsseldorf’s industrial and commercial business parks by early 2018 (see Deutsche Glasfiber and Vodafone Germany to build business fibre networks).

Vodafone said it is responding to evidence that local enterprises and communities of all sizes want to move away from slow copper-based internet services; the number of enterprise bids that include fibre has doubled since past year, according to the operator. 25 percent of broadband connections are below 50Mbps, with only 2 percent of all broadband connections at Gigabit speeds.

Ideally Vodafone would like to reach 100,000 companies in around 2,000 business parks by the end of calendar 2021, at a cost of approximately €1.4-€1.6 billion, and it plans to rope in partners with either specialist fibre skills or relevant infrastructure assets, to help it get there.

The British company said in a statement that the additional spending on its network would boost its service revenue growth in Germany by 1-2 percentage points in the mid-term and should pay for itself over a four- to six-year period. Working with a number of partners, the partner will deploy the passive infrastructure while Vodafone operates the network.

While in the long term Vodafone expects to take full control of the passive infrastructure, it reckons this approach will limit its upfront cash outflow to about a third of total construction and CPE (customer premises equipment) costs.

The estimated unlevered IRR of this initiative is over 20 percent, with a typical payback period per individual business park of under 4 years. The municipalities will build the passive network infrastructure, and Vodafone will operate the network under a long-term partnership/rental agreement. Similarly, it will require a third of homes in rural areas to commit to fiber services before it can move ahead. For Vodafone, this is expected to cost around €0.2 – €0.4 billion. The cable network will be enabled for DOCSIS 3.1 services over two years compared to the previous four-year rollout plan.

Vodafone Germany CEO, Hannes Ametsreiter, described the investment strategy as “transformational” and predicted it would deliver “incremental revenue growth and attractive returns for Vodafone’s shareholders”.

Gigabit speeds will start to be available in the largest German cities in 2018. The initiative is expected to cost EUR200.0 million, with a payback period of less than four years.

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