Report: Telefónica closing in on $5.9B deal to build fiber network in Germany

Telefónica Infra is in the final stages of negotiating a $5.9 billion deal to build a fiber-optic network in Germany, according to Reuters.

Telefónica Infra, which is Telefónica's infrastructure division, is planning to sign a deal with banks and an unnamed infrastructure investor by the end this month, Reuter's sources said.

Banks are slated to lend two-thirds of the funds needed to build the fiber-to-the-home (FTTH) network with the rest being equity, "including an investor now holding exclusive talks with the company," Reuters said.

Reuters reported the  $5.9 billion price tag would be a total investment number, "with money to flow to the fiber venture in stages once project milestones are reached."

In July, Ángel Vilá, Telefónica's chief operating officer, foreshadowed the FTTH network by saying it would be built in the parts of Germany that are under-served by Deutsche Telekom and Vodafone, among others.

Reuters reported Telefónica Deutschland would likely have a passive equity stake in the new fiber network, and become an anchor customer.

In addition to the incumbents, the new fiber network would also face stiff competition from other players in the market. Earlier this year, investment firms EQT Infrastructures and OMERS bought fiber-to-the-home company (FTTH) Deutsche Glasfaser from another investment company. EQT and OMERS paid KKR about $2.74 billion plus debt for Deutsche Glasfaser. Last year EQT Infrastructure bought Inexio, and is merging that company with Deutsche Glasfaser.

RELATED: Investors buy wholesale fiber company Deutsche Glasfaser for close to $3B

The German government has put a plan in place to provide nation-wide gigabit internet infrastructure across the country by 2025. In order to meet that goal, companies such as Deutsche Telekom and Vodafone have ramped up their fiber deployments efforts in rural, under-served areas of the country.

RELATED: Deutsche Telekom partners with utility company EWE for fiber buildout

In February, Deutsche Telekom announced it had formed a joint venture with utility company EWE to build out a fiber infrastructure that will serve up to 1.5 million homes and businesses. The new fiber-joint venture is called Glasfaser Nordwest. The joint venture's goal is to bring fiber-to-the-home (FTTH) infrastructure to Lower Saxony, starting with 12 municipalities.

In short there are numerous companies that already have fiber, or plan to, in Germany, which could make debt-back venture risky. The fiber network could also further weigh down Telefónica's attempts to further whittle down its debt load.

“Maybe I lack the imagination, but I struggle to see a good starting point for Telefónica to build a FTTH network in Germany,” said one industry source, according to Reuters.