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Telenet to switch to FTTH in network joint venture with Fluvius

Telenet Group Holding NV and Fluvius System Operator have entered into a binding agreement to take a joint next step in the realization of the data network of the future. Both companies’ ambition is to provide speeds of 10 Gbps across the entire footprint in time, for which there is a clear roadmap. As announced in October last year, both companies will incorporate a new independent self-funding infrastructure company, of which Telenet will own 66.8% and Fluvius 33.2%. Combining both companies’ fixed network assets, NetCo will invest in the gradual evolution of their current hybrid fiber coaxial (“HFC”) network infrastructure into a Fiber-To-The-Home (“FTTH”) network, targeting 78% of their combined footprint in Flanders by 2038, through a combination of own build and/or a potential collaboration with external partners. Telenet’s footprint in parts of Brussels and Wallonia will also be included in NetCo and be part of NetCo’s investments. The estimated investment of up to maximum €2.0 billion[1] will be funded through NetCo’s cash flow as well as additional intragroup financing facilities and will therefore not require any incremental external financing. The majority of this investment will be done within the next eight years. NetCo will also focus on upgrading the existing HFC network with DOCSIS technology in areas where FTTH will not be deployed. This will ensure that everyone in Flanders will continue to enjoy the fastest and most reliable internet connection.

Data traffic still rapidly increasing
Internet use is intensifying, digital applications are continuously developing and the speed and stability requirements for data networks continue to increase. The data usage per fixed broadband connection grew to an average of 239 gigabytes (GB) per month, i.e., more than doubled versus three years ago2.

Telenet is already providing gigaspeed connectivity across its entire footprint following continuous investments over the past decades. These were done across Telenet’s own network as well as the network which Telenet leases from Fluvius through a long-term lease agreement (‘erfpacht’) in around one-third of Flanders. To maintain this leadership position, Fluvius and Telenet now intend to cooperate even more closely through NetCo, a new company that will develop, operate, maintain and upgrade the data network of the future.

Smart investments in an open network
Both Telenet and Fluvius will transfer their existing HFC network and fiber assets to NetCo. Fluvius will also contribute the aforementioned long-term lease (‘erfpacht’), which will cease to exist as of closing. Telenet will own 66.8% of NetCo and will therefore consolidate NetCo into its financial accounts. Fluvius will own the remaining 33.2%. As announced in October last year, both NetCo shareholders remain open to welcome new strategic and/or financial partners and NetCo is well positioned to do so given its strong fundamentals.

It is expected that the new company will start operations in the beginning of 2023. Telenet and Fluvius are in constructive talks with the competition authorities in relation to this transaction. NetCo’s CEO will be appointed by NetCo’s board of directors. At launch, the employment of approximately 170 current Telenet employees will transfer to NetCo, which also aims to hire an additional 50 people. Fluvius will not transfer personnel, but will ensure a smooth transition of the relevant activities. Its current telecom employees will assume other tasks within Fluvius in the future against the backdrop of the challenges in terms of energy transition.

NetCo will continue to invest in the upgrade of the current HFC network with DOCSIS technology. At the same time, it targets to cover 78% of Flanders through FTTH by 2038, investing up to maximum €2.0 billion3. NetCo will actively pursue opportunities to further optimize its network roll-out plan and associated CAPEX through a combination of own build and/or a potential collaboration with external partners. More than 50% of homes passed in NetCo’s footprint are very economic to pass with FTTH at an estimated cost per premise of around €6503. This results in attractive returns given NetCo’s market-leading network penetration rate. The majority of this investment will be done within the next eight years. This will be realized through a combination of own build and/or a potential collaboration with external partners in the most efficient way and at the lowest societal cost. Telenet’s footprint in parts of Brussels and Wallonia will also be included in NetCo and its investments.

NetCo will operate an open network and will provide non-discriminatory access to it: Telenet and other operators will be provided with network access on the basis of wholesale agreements. Thanks to a strong wholesale customer base with a market-leading network penetration rate of close to 60% from the start, and the associated income from the wholesale operations, NetCo will generate revenue from day one. In addition to these cash flows, NetCo will rely on intragroup financing facilities, removing the need for incremental external financing. NetCo will carry a net total leverage close (defined as Net Total Debt divided by the Last Two Quarters’ Annualized Adjusted EBITDA) to 5.0x as of incorporation, equivalent to approximately €2.4 billion.

NetCo’s ambition is to provide speeds of 10 Gbps across the entire footprint in time, for which there is a clear roadmap. For Telenet customers, this means that the network they are already using today will remain well placed to cater to their digital lifestyle. This way, all Telenet business and residential customers will be able to rely on reliable, giga-fast data networks in the future. Fluvius and Telenet are thereby aiming to minimize the risk of a digital divide.

CT Bureau

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