Fiber Orange Sells 50% Interest in €605m Fiber Joint Venture to APG

Orange Sells 50% Interest in €605m Fiber Joint Venture to APG

Orange Polska APG ABP Fiber Joint Venture Poland

Orange SA’s Polish unit, Orange Polska, today announced an agreement with APG, the manager for Dutch pension fund ABP, to form a 50%/50% joint venture called FiberCo which will roll-out fiber in Poland. The transaction is expected to close by the end of August 2021.

Orange APG Fiber FiberCo Transaction Structure

FiberCo – Orange Polska and APG Fiber Joint Venture

Orange Polska will initially contribute a network with 700k fiber passings from its current fiber footprint into the FiberCo joint venture. Of these total passings, the network already has 160k fiber broadband subscribers, equating to a penetration rate of 23%. Once contributed into FiberCo, Orange Polska will lease wholesale access for these 160k existing customers, in this footprint, from FiberCo.

Fiber Roll-Out Plan

By 2025, FiberCo intends to pass an additional 1.7 million households with fiber-to-the-home (FTTH) in Poland. Therefore, FiberCo’s network will ultimately pass 2.4 million households with fiber in Poland by 2025. Indeed, this means that Orange and APG’s joint venture will become the largest independent fiber optic network operator in Poland.

Orange APG Joint Venture FiberCo Locations Poland
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The FiberCo joint venture will roll-out fiber in several types of locations throughout Poland. Specifically, these include small cities, suburban villages, residential housing districts, and densification in urban environments.

Transaction Overview – FiberCo (Orange Polska and APG)

Overall, the transaction values the FiberCo joint venture, on a whole-company basis, at €605m (PLN 2.7bn). For its 50% stake purchase, APG will pay Orange Polska €303m (PLN 1.4bn). Of this total consideration, APG will pay 65% (€197m) on closing. While the remainder will be paid between 2022 and 2026, as the fiber deployment plan advances.

Fiber Roll-Out Costs

Orange Polska and APG estimate the total capital expenditures required to pass the additional 1.7 million households with fiber will be €660m (PLN 3.0bn). Indeed, this equates to a cost of €388 per passing. Notably, Orange Polska will construct the network, within a guaranteed fixed budget.

The FiberCo joint venture will finance this €660m (PLN 3.0bn) requirement primarily from its own debt facility. Specifically, 80% of the capital expenditures, equivalent to €528m will be financed with debt. In terms of equity contributions, both Orange Polska and APG will invest €66m (PLN 300m) between 2023 and 2026.

Open Access Wholesale Fiber Network – FiberCo

The FiberCo joint venture is structured as an open access wholesale fiber network, with Orange Polska as the operator and anchor tenant. Therefore, the network will be available to Orange Polska and any third-party operator to use on a wholesale basis.

Orange Polska FiberCo Open Access Wholesale Fiber Network
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Orange and APG note that this strategy intends to maximize the fiber revenue opportunity by opening-up the wholesale access.

Iliad – Potential Customer of FiberCo

In 2020, Iliad the third largest wireless carrier in France, closed its acquisition of Play, the largest wireless carrier in Poland. In doing so, Iliad is strategically seeking to grow Play’s fixed broadband business.

As a result, Iliad will probably seek to expand Play’s fixed broadband customer base by leveraging the open access wholesale fiber network of FiberCo. Given the scale of Iliad’s growth ambitions in fixed broadband, it will likely become a significant wholesale customer of FiberCo.

Transaction Rationale – Orange Polska

For Orange Polska, a major premise of forming the FiberCo joint venture with APG, is to be able to share the fiber-optic roll-out investment costs. Indeed, the joint venture allows Orange Polska to pass an additional 1.7 million households in areas where it currently does not offer fiber broadband services.

Additionally, at closing, Orange Polska receives an upfront cash infusion from APG, with funds from ABP, in exchange for the contribution of its network with 700k fiber passings. In turn, this allows Orange Polska to immediately pay down debt and strengthen its balance sheet. Moreover, a stronger financial position allows the company to make the necessary investments in its mobile business to roll-out 5G.

Finally, Orange is supporting the roll-out of fiber in Poland, in areas where high-speed broadband services are limited or non-existent. Notably, Poland only has 7 million households with access to fiber optic broadband, which represents ~50% of total households.

Orange Polska – Overview

Orange Polska is a subsidiary of Orange SA, the largest wireless carrier and broadband provider in France. Specifically, Orange SA owns a 51% equity interest in Orange Polska, which trades separately on the Warsaw Stock Exchange.

Orange Polska is the largest fixed broadband provider in Poland with 2.7 million fixed broadband subscribers, of which 725k are fiber broadband customers. Additionally, the company is the second largest wireless carrier in Poland, having 15.8 million mobile subscribers.

Orange SA – Digital Infrastructure in 2021

The formation of the Poland fiber joint venture, FiberCo, between Orange Polska and APG, with ABP’s backing, marks Orange SA’s third major digital infrastructure initiative of 2021.

Firstly, in January 2021, Orange SA sold Caisse des Dépôts, CNP, and EDF Invest a 50% stake in Orange Concessions, a fiber-to-the-home business in rural France. Secondly, in February 2021, Orange SA began the corporate carve-out of a tower company called TOTEM. Specifically, TOTEM will own and operate 25.5k tower sites across France and Spain.

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