KKR, a private equity firm, today announced an agreement with Telefónica to acquire a 60% controlling stake in Telefónica Colombia’s existing fiber-to-the-home (FTTH) network, the largest fiber optic network in Colombia, at a valuation of $500m U.S. dollars. In so doing, KKR and Telefónica will establish Colombia’s first independent nationwide open access wholesale fiber infrastructure company (Colombia FiberCo).
For its 60% stake sale, Telefónica Colombia will receive a payment of $200m initially and will be eligible for performance-based consideration of up to an incremental $100m, resulting in a total potential payment of $300m.
Overall, this unit generates ~$25m of EBITDA, implying a multiple of 20.0x EBITDA for the business. Also, the valuation equates to $410 per passed property unit (PDU) on the ~1.2 million homes passed with fiber.
Colombia FiberCo – KKR and Telefónica
KKR and Telefónica plan to bring superior broadband services to Colombia by expanding the availability of fiber optic internet to consumers and businesses across the country.
KKR is making the investment into the newly established, independent entity through its Global Infrastructure Investors funds. Furthermore, the Colombia FiberCo entity will be controlled by KKR, given it will own a 60% stake in the company. Indeed, Telefónica will be a minority shareholder in the new company, with a 40% stake.
Open Access Wholesale Fiber Network
Upon completion of the transaction, Telefónica’s existing fiber optic network will become open access and available for all internet service providers (ISPs) in Colombia to utilize. Also, the network will help facilitate new 5G connectivity.
Importantly, Telefónica, which operates under the brand Movistar in Colombia, will be the anchor tenant on the Colombia FiberCo network.
Telefónica Colombia – Overview
Telefónica offers fiber optic services in 50 cities and municipalities in Colombia. More broadly, the company serves 210 cities with fixed broadband and 965 cities with 4G/LTE mobile connectivity in the country.
As of Q1 2021, Telefónica had 19.9 million customers in Colombia, across its various services. Specifically, these customers include 1.2 million broadband customers, of which 366k use fiber services. Given that Telefónica also passes ~1.2 million homes with fiber, the company’s fiber penetration rate equates to 30.5%.
Additionally, Telefónica’s total customer base includes 16.7 million mobile lines, 527k pay TV subscribers, and 1.4 million fixed lines in-service.
KKR’s investment will enable the Colombia FiberCo to expand Telefónica’s existing fiber optic coverage from ~1.2 million homes to a minimum of 4.3 million homes by the end of 2024. Notably, this means that KKR and Telefónica will pass an additional 3.1 million homes over the next ~3.5 years. In turn, this implies an annual pacing of ~900k fiber household passings.
Overall, by the end of 2024, KKR and Telefónica anticipate covering at least 87 municipal areas in Colombia. Importantly, more than 50% of these localities will be in underserved areas, outside of high-income urban areas.
To execute this fiber expansion, KKR and Telefónica’s Colombia FiberCo will be run independently, by a local team in Colombia.
Fiber Investments and Partnerships – KKR and Telefónica
Today’s announcement in Colombia closely follows KKR and Telefónica’s agreement in February 2021, to establish ON*NET Fibra in Chile. Similarly, ON*NET Fibra is Chile’s first open access wholesale fiber network, in which KKR bought a 60% stake from Telefónica.
KKR – Fiber-to-the-Home (FTTH) Investments
KKR has been rapidly investing from its Global Infrastructure Investors funds into fiber operating companies and greenfield fiber deployments worldwide. Through KKR’s $7.4bn Global Infrastructure Investors III fund, the company has made fiber optic investments in HyperOptic in the UK, FiberCop in Italy, ON*NET Fibra in Chile, Open Dutch Fiber in the Netherlands, and MetroNet in the United States.
Telefónica – Fiber-to-the-Home (FTTH) Partnerships
Telefónica has also formed a similar fiber partnership with CDPQ, a Canadian pension fund, for the construction and operation of an open access wholesale fiber network in Brazil, known as FiBrasil.
Additionally, Telefónica is reducing its capital expenditures into fiber deployments across Brazil, Chile, Colombia, and Argentina by leveraging co-investment deals with American Tower, Andean Telecom Partners (ATP), a portfolio company of DigitalBridge, and Phoenix Tower.
Transaction Advisors – KKR
KKR’s financial advisors were Scotiabank and Bank Street.