German fiber operators Inexio and Deutsche Glasfaser could both soon go up for sale, giving a buyer the opportunity to combine the two assets and create a stronger rival to the country's other broadband players, according to Reuters.
Citing sources close to the matter, the report says Inexio is expected to go up for sale later this year and could be valued at more than €1 billion (US$1.1 billion). Deutsche Glasfaser is also preparing for a possible sale in late 2019 or early next year, it says, putting a likely valuation of the company at €1.5-2 billion ($1.7-2.2 billion).
The private equity-owned operators have built relatively small networks in under-served parts of Germany. Deutsche Glasfaser has around half a million connections, while Inexio is expected to make just €50 million ($55 million) in earnings (before interest, tax, depreciation and amortization) this year, according to the Reuters report.
Interest might come from a bigger operator, such as Deutsche Telekom, looking to plug gaps in its footprint. Inexio and Deutsche Glasfaser enjoy "de facto local monopolies," according to Wolfgang Heer, the head of the Buglas association that represents fiber-optic firms, as quoted in the Reuters story.
Alternatively, they could attract the attention of other infrastructure investors counting on growth in demand for connectivity services with the rollout of 5G networks and the popularity of video-streaming services.
But turning the companies into one meaningful national player would require huge investments, and competition is already growing in the German broadband market.
National incumbent Deutsche Telekom has outlined plans to build all-fiber connections for about 2 million new properties annually. It has also been upgrading its copper-based broadband networks using speed-boosting technologies such as vectoring and supervectoring. In addition, it is thought to have signed a contract for Gfast equipment with Adtran, one of its main broadband suppliers.
Gfast is another "last-mile" technology that boosts connection speeds.
Rival Vodafone is another big operator pumping money into higher-speed connections. This week it completed an €18.4 billion ($20.4 billion) takeover of Liberty Global assets that include Unitymedia, one of Germany's biggest cable operators. By combining that with its existing network, Vodafone aims to provide "gigabit" services to 25 million German homes by the end of 2022.
The news surrounding Deutsche Glasfaser is interesting given Vodafone's previous relationship with the small operator. Two years ago, it announced a tie-up with Deutsche Glasfaser aimed at providing gibabit-speed services to around 18 business parks in the Dusseldorf area.
Existing investors in Inexio and Deutsche Glasfaser are unwilling to make further investments in network rollouts, according to the Reuters story. But another infrastructure investor may feel differently.
Inexio is 59% owned by Warburg Pincus, while Deutsche Glasfaser's majority owner is KKR.
A sale would target investment groups, including EQT, Macquarie, Allianz, Global Infrastructure Partners, DWS, Antin and Infravia, as well as telecom operators such as United Internet, reports Reuters.
In the case of United Internet, new fiber assets could help to provide "backhaul" support for soon-to-launch 5G services: 1&1 Drillisch, its consumer division, recently secured spectrum in a government 5G auction and plans to build a fourth mobile network in Germany.
— Iain Morris, International Editor, Light Reading