Gigabit Era: Vodafone Germany Unveils Gigabit Investment Plan

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Vodafone Germany is all set to invest approximately €2 billion of incremental capital expenditure by the end of calendar 2021 in Gigabit ultrafast fibre broadband services, which are expected to deliver around 13.7 million new gigabit connections to German consumers and enterprises.

Giga-Business: targeting 100,000 companies in around 2,000 business parks, both in co-operation with partners such as Deutsche Glasfaser and standalone, an incremental investment of €1.4 – €1.6 billion

Giga-Municipality: partnering with local municipalities to reach around one million rural consumer homes, an incremental investment of €0.2-€0.4 billion

Giga-Cable: accelerating the upgrade of existing cable infrastructure to deliver Gigabit speeds across Vodafone’s 12.6 million cable homes, an incremental investment of €0.2 billion.

A success-based model which meets Vodafone’s disciplined investment criteria, with an attractive estimated IRR of over 20% and a typical payback period of under four years per business park and under six years per municipality.

Group capital intensity is expected to remain in the ‘mid-teens’ as a percentage of revenues over the medium-term, excluding ‘Gigabit Investment Plan’ capital expenditure which will be disclosed separately going forwards.

Vodafone Germany CEO, Hannes Ametsreiter, commented, “I am excited to announce this transformational investment plan for Germany, which will bring Gigabit broadband services to millions of consumers and businesses. The project is consistent with our strategic goal to become a leading converged communications operator in Germany, enabled by a best-in-class Gigabit network infrastructure. I am confident that these largely success-based investments will deliver incremental revenue growth and attractive returns for Vodafone’s shareholders.”

The Gigabit Investment Plan:

Vodafone today announces its intention to invest approximately €2 billion in Gigabit ultrafast fibre broadband services in Germany over the next four years, delivering around 13.7 million Gigabit connections for both consumers and businesses. This investment will allow local enterprises and communities of all sizes to move away from slow copper-based Internet services. Today, 25% of broadband connections are still below 50Mbps, with only 2% of all broadband connections at Gigabit speeds; and the number of enterprise bids that include fibre has doubled since last year. With speeds of up to 1 gigabit (1,000 megabits) per second, this investment will revolutionise the digital experience of homes and businesses across Germany.

The Gigabit Investment Plan comprises three related initiatives, which in aggregate are expected to create around 13.7 million new gigabit connections:

Giga-Business: This initiative builds on the partnership agreement announced in July 2017 with Deutsche Glasfaser, a leading provider of fibre-to-the-premises networks in Germany, to reach 19 of Düsseldorf’s industrial and commercial business parks by early 2018. Today we are expanding our ambition and we now aim to reach 100,000 companies in around 2,000 business parks by the end of calendar 2021, at a cost of approximately €1.4-€1.6 billion. Vodafone will work with a number of partners with either specialist fibre skills or relevant infrastructure assets, including Deutsche Glasfaser. A minimum take-up of around 40% of the businesses in each individual park is required before the investment can proceed.

Under the terms of these strategic agreements, the partner (and in some cases Vodafone on a standalone basis) will deploy the passive infrastructure, while Vodafone will operate the network and supply services to customers. Over the long-term, Vodafone will typically take full ownership of the passive infrastructure.

This approach is cash-efficient, as it limits the up-front cash outflow to around one-third of the total build and CPE costs. The estimated unlevered IRR of this initiative is over 20%, with a typical payback period per individual business park of under 4 years.

Giga-Municipality: Vodafone aims to offer gigabit services to around one million consumer households in rural areas, in co-operation with local municipalities, by the end of calendar 2021. Under this co-investment model, the local municipality will build and own the passive network infrastructure from the central office to the home, with the potential support of government fibre subsidies. Build-outs will only begin once around one third of the homes in a municipality have committed to buy fibre services.

Vodafone will operate this network under a long term partnership/rental agreement, building the link between the central office and its fibre backbone, deploying the active equipment (including CPEs) and paying the connection costs for each household. For Vodafone, this is expected to cost around €0.2 – €0.4 billion. The estimated unlevered IRR of this initiative is over 20%, with a typical payback period of under six years per municipality.

Giga-Cable: This initiative aims to enhance Vodafone’s entire cable footprint from the current top speed of 500 Mbps to 1 gigabit per second, through the accelerated adoption of DOCSIS 3.1 technology. The cable network will now be enabled for DOCSIS 3.1 services over two years compared to the previous four-year rollout plan.

This will meet the growing customer demand for speed, enhancing our competitive advantage compared to copper-based technologies; in Q1 17/18, more than half of our new broadband users opted for cable connections of up to 200 or 400 Mbps. In July this year we launched our fastest offering of up to 500 Mbps, which is now available to over 2.5 million households in 100 cities. Gigabit speeds will start to be available in the largest German cities in 2018.