Telefónica hooks up with Allianz for FTTH rollout in Germany

After rumors began percolating earlier this month, Telefónica announced it has inked an agreement with Allianz for a fiber deployment in Germany.

Allianz and Telefónica Group will each have a 50% stake in the fiber-to-the-home (FTTH) network that will serve rural and "semi-rural" areas in Germany. The capital invested will be made up from shareholders' equity and a long term subordinated loan, plus non-recourse external financing.

Telefonica will invest up to EUR 500 million in equity while Allianz will invest up to EUR 1 billion through different instruments. All told, the joint venture intends to invest up to EURO 5 billion through various sources of funding over the next six years. Reuters first reported on the rumored joint venture on Oct. 8.

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

Telefónica Group’s participation will be held through Telefónica Infra, which is its infrastructure division, which will have a 40% stake while Telefónica Deutschland / O2 will have the remaining 10% stake. Allianz Capital Partners will invest 50% in the joint venture on behalf of Allianz insurance companies and the Allianz European Infrastructure Fund.

The joint venture plans to light up more than 50,000 kilometers of fiber in order pass more than 2 million homes in Germany. Telefónica brings its technical capabilities and expertise in deploying and operating the fiber networks to the joint venture while Telefónica Spain will provide network design and operations expertise throughout the deployment years.

The transaction for forming the joint venture is expected to close in the first half of next year once it receives customary approvals.

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.

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.

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