Telefonica sells 2,029 towers in Ecuador and Colombia

Telefonica has confirmed the sale of 2,029 towers in Ecuador and Colombia for €290 million to Phoenix Tower International.

This is one of the first signs we have seen of the Telefonica ‘Five Point Plan’ becoming a reality. Telefonica is a business which is seemingly drowning in debt, and one pillar of this new strategy has been to monetize tower assets around the world.

“We are honoured to expand our relationship with Telefonica in Ecuador and Colombia and look forward to working closely with them on their ongoing wireless build-out initiatives across the world,” said Phoenix Tower International (PTI) CEO Dagan Kasavana.

“These transactions are exciting for PTI and will allows us to become the market leader in Ecuador, a USD based market with three healthy wireless operators with significant 4-G build-out needs in the coming years. The transaction in Colombia solidifies PTI’s strong market position with over 1,800 owned towers. Colombia has been a great market for PTI, and we see continued growth from all of the carriers in the coming years.”

The Telefonica executive team has been under considerable pressure over the last few years to deliver additional value and drive down the debt. It seems this pressure has only intensified as the realities of 5G and fibre investments start to become a reality. The disposal of passive infrastructure is one-way numerous telcos are raising funds to fuel future ambition.

Telefónica enters ‘new era’ with major business restructure

Group CEO José María Álvarez-Pallete has unveiled a five-point strategy which include prioritising Telefónica’s growth markets.

The four markets to be prioritised will be the UK, Spain, Germany and Brazil, while the other points include spinning off the rest of the LATAM businesses into a single unit, the creation of a cybersecurity, IOT and AI division and a tower unit, as well as restructuring the management structure. Álvarez-Pallete claims the new strategy will add an additional €2 billion a year to group revenues.

“Geopolitical, macroeconomic and regulatory uncertainties, and high competition in the sector require an increasingly demanding allocation of capital,” said Álvarez-Pallete.

“If in the past the low penetration of voice and data services assured future growth, the current maturity of the markets and the appearance of new competitors subject to different rules demand a highly focused strategic approach.”

The plan will aim to prioritise areas where the business sees greatest opportunity for profits, but perhaps also the most significant threats. In the UK and Germany, for example, the national business units are pure-play mobile operators. This will allow Telefónica to concentrate investments, though it does present the risk of being undermined by converged product offerings, a strategy of most major rivals in these markets.

For the moment, it is not entirely clear how this plan will materially impact operations in these markets, though it is a sensible business strategy. The four markets mentioned above account for 218 subscribers, 63% of the total across all group operations, as well as 80% of the group revenues. Telefónica is simply doubling down on the markets where it has seen the most joy in recent years.

The creation of two additional business units also create new opportunities to drive revenues for multinational partners. For Telefónica Tech, the team will target three segments which are aggressively expanding today, and the infrastructure business unit has been an ambition of Telefónica for months. These are country-agnostic business units, leveraging the global expanse of Telefónica’s footprint; it is a very sensible and reasonable approach.

Moving across to the LATAM business unit, it does appear the business is attempting to isolate a region which has proven difficult in recent years.

“Our operations in Latin America were the growth engine of the company until a few years ago,” said Álvarez-Pallete.

“However, the particular conditions in these markets have had an impact on the business, reducing its contribution in recent years for different reasons and despite the enormous efforts of our local teams, which have always shown a strong commitment.”

This is not to say there is not money to be made in LATAM, or that the creation of a separate business unit should be viewed as a negative. The Latin American nations are a completely different beast, with very complex challenges. Perhaps removing Brazil, this region could not be more difficult from Europe. Once again, it is a perfectly reasonable approach to separate the business, achieve scale economics through combining the individual countries under one structure and appointing a specific management team with its own strategy.

Although Telefónica is not necessarily a business which is in trouble, the billions of debt which it is working hard to clear creates a slight position of discomfort. This is a business which needs to do something different, as well as prioritise investment in stable markets where threats are becoming increasingly apparent. The UK and Germany are markets where it could find itself in a bit of bother unless rivals aggressive moves are countered. This does look like an effective and reasonable approach to meet the challenges.

Loon claims second customer win in Amazon rainforest

Google-owned balloon connectivity firm Loon has officially signed its second customer, Internet para Todos Perú, to deliver the internet to remote regions in the Peruvian Amazon.

The agreement between Loon and Internet para Todos Perú will kick-off in 2020, providing connectivity to 200,000 people in the Peruvian Amazon. This is the second commercial agreement signed by Loon, and the first sustained, non-emergency use of the technology in South America.

Owned by Telefónica, Facebook, IDB Invest and CAF, Internet para Todos Perú is an open access wholesale rural mobile infrastructure operator, aiming to deliver the internet to regions which are considered commercially unattractive. Although Internet para Todos Perú is telco neutral, this agreement with Loon will be to deliver connectivity to Telefonica’s customers in the first instance.

“Internet para Todos was born with the purpose of connecting millions of Latin Americans, including 6 million Peruvians without adequate access to mobile internet,” said Teresa Gomes, CEO of Internet para Todos Perú.

“This challenge involves reaching difficult access areas with innovative and sustainable technologies that allow us to overcome geographical, technological and economic complexities.”

For those not familiar with Loon, the business is a graduate of Google’s Moonshot Labs. A seemingly ridiculous idea to use hot air balloons to float radio technology above the worlds’ most difficult to reach regions. These are the areas where laying traditional connectivity infrastructure is not a viable option, ROI would be far too low, so the absurd ideas are considered.

The balloons, floating 20km above sea level, will house 4G radio equipment. Signals from ground infrastructure will be distributed between the network of floating cell sites before relaying to 4G devices on the ground.

Discussions with Telefonica have been on-going for months, though Loon seemingly proved its worth by answering calls from the Peruvian Government and Telefonica following a magnitude 8.0 earthquake in May. The team had already been in the process of laying infrastructure in the region, and it took less than 48 hours for the balloons to arrive and start delivering 4G to users below.

While permanent contracts with telcos will of course be more lucrative to the Loon business, assistance in disaster situations is another element. In various regions throughout the world, the Loon team will be laying infrastructure for the worst-case scenario, though it does give the team a head-start when negotiating with the local telcos.

This is not the first time Loon has reacted to natural disasters in the region. In 2017, Loon worked with Telefonica to support efforts in flooded regions in Peru, and a few months later, AT&T and T-Mobile US after Hurricane Maria impacted Puerto Rico. In the aftermath of such natural disasters, Loon’s assistance was critical to replace damaged communications infrastructure, but the business does have to be more than an emergency services tool.

This agreement is a positive step forward, but it is only the second. At some point, the Loon team will have to start making news headlines more often. There is a huge amount of potential for Loon, though at the moment it doesn’t appear to be more than a quirky idea.

Telekom Kenya and Telefonica clearly see the benefits of the technology, but there are hundreds of telcos across the world who fit the customer profile. The vast majority will be in the larger developing markets, where low ARPU inhibits the deployment of traditional connectivity infrastructure, but there are also niches in the developed markets. Australia or the US for example, where vast landscapes and remote communities present the same ROI challenges.

Telefonica is an excellent customer win, this is one of the largest telcos worldwide after all, and there will be plenty of opportunity to cross-sell to other national business units. However, at some point Loon will have to prove it is more than an interesting idea and announce more contracts.

AT&T offloads Puerto Rico and the US Virgin Islands units to Liberty LATAM

Some might suggest this is a knee-jerk reaction to the intentions of an activist investor, though the vulture fund should not be able to claim credit for this one.

AT&T has announced it will sell its wireless and wireline operations in Puerto Rico and the US Virgin Islands to Liberty LATAM for $1.95 billion. The transaction is expected to close in six to nine months, depending on approvals from the FCC and the Department of Justice.

“I’m especially proud of our network and the recent network enhancements that have helped AT&T rank as the fastest network in Puerto Rico,” said Jose J. Davila, AT&T’s GM for the region. “AT&T also has the most coverage on the island, according to Mosaik.

“Our experienced and committed team members will continue to support these operations as we join Liberty Latin America. Liberty Latin America has expressed its commitment to provide high-quality communications services to the people of Puerto Rico and the U.S. Virgin Islands. And we’re confident that it is equally committed to supporting these communities.”

Although pressure is being applied to the AT&T management team by activist investor Elliott Management, this perhaps not a move which would have been seen as attractive. The vulture fund does often approve of asset divestment in the pursuit of increased dividends and a higher share price, but the intricacies of this deal does not add up.

In an open letter to AT&T investors, Elliott Management did call for divestment but only in pursuit of refocusing the business on core activities. In other words, Elliott Management wants AT&T to focus more acutely on connectivity products and services.

Looking at this deal with Liberty LATAM, AT&T is proposing the sale of core connectivity assets but retaining the service and responsibility of FirstNet and DirecTV assets in the region. What is being released and what is being retained does not make sense if this is the influence of Elliott Management. What is more likely is this transaction would have gone ahead irrelevant of outside influences.

“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stevens.

“But doing so only made sense if we received a fair value from a buyer that is committed to taking this well-run business, with its skilled employees and loyal customer base, and help it thrive. Liberty Latin America has a strong reputation for quality of service, and we believe they have the experience to build on the success of these operations.”

As of June 2019, AT&T’s debt stood at $158 billion, largely thanks to expensive acquisitions in the pursuit of diversification. The team has said it plans to lower its debt by $20 billion over the course of the year. The team now claims to have completed or announced monetization efforts totalling more than $11 billion.

On the other side of the transaction, Liberty LATAM is continuing its quest to reprioritise the business. Following a number of divestments in the European region, the telco has been attempting to gather momentum in the LATAM markets. This is another deal which will improve the position of the firm.

“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” said Balan Nair, CEO of Liberty Latin America.

“At Liberty Latin America, we are focused on investing in digital infrastructure, innovation and 5G networks and on delivering a friendly customer service experience. This transaction is evidence of that, and we are confident that this new combination will be good for our customers and our employees, including those joining us from AT&T.”

Looking at the Liberty LATAM business, the team is certainly not shying away from investments. Aside from this deal, the team also completed the acquisition of the remaining 12.5% of United Telecommunication Services, increasing the presence across several Caribbean islands. In August, the telco also announced aggressive expansion plans for broadband in Chile and was in discussion to acquire Millicom International earlier this year.

Liberty Global completes spinoff of LATAM business

Liberty Latin America is now officially an independent, publicly-traded company, listed on the NASDAQ Global Select Market, after the split from parent-company Liberty Global.

The new business, which has been almost three years in the making, operates in Panama, Chile, Jamaica, Puerto Rico, several Caribbean island nations and the Seychelles islands in the Indian Ocean, and will have annual revenues of $3.7 billion through 5.3 million subscriptions in of cable TV, internet, mobile and other related services.

“The split-off of our Latin American and Caribbean operations from Liberty Global will ensure that this new company will have access to the capital and resources necessary to achieve superior financial and strategic growth,” said Mike Fries, Executive Chairman of Liberty Latin America and CEO of Liberty Global.

“In a region that is currently served by a highly fragmented range of operators and with customer penetration rates roughly half of more mature markets, we see significant prospects for long-term growth both organically as well as through strategic M&A,” said Balan Nair, CEO of Liberty Latin America.

The move itself will offer a new breath of freedom for an ambitious business facing a tough landscape in the region. Several natural disasters have shattered communities across LATAM, though many services are now back up and running. Despite the adverse conditions, there will be opportunities across the continent, as telcos have struggled to provide a consolidated offering in recent years.

Digicel is one organization which might be a bit wary of the move. After several years of mediocre growth, the last two quarters of natural disasters hit the company hard, while a $50 million restricting charge was absorbed at the end of the last financial year as the team reduced its workforce by 25%.

A refreshed competitor, with support of one of the world’s largest TMT companies, and an eye on consolidation across the region is certainly one to keep an eye on.