Telefónica and KKR have done it again – this time in Peru

In a somewhat unsurprising move, Telefónica has repeated its strategy for Brazil, Chile and Colombia and sold control of its fiber business in Peru as well.

In Chile and Colombia, Telefónica formed a JV with US fund KKR. In the case of Peru, Chilean company Entel, which also operates in that country, has signed up as a third partner. KKR because the controller in all of those countries.

The commercial brand is also the same in all three nations: On Net Fibra.

Brazil, one of Telefónica's four priority global markets, along with Spain, the UK and Germany, is the only exception. Instead of KKR, Telefónica's fiber JV partner is Canadian fund CDPQ.

Telefónica has therefore given up control of its fiber operation in four of the largest economies in the region.

Argentina remains a pending case, where it already has established partnerships for shared use of fiber, with iPlan and Metrotel for example.

There is currently no information about any sale underway in Argentina, but given what has taken place elsewhere, it is likely that a fiber sale will happen there soon – probably with KKR once again.

KKR reported US$471bn in assets under management as of December 31, up 87% from a year earlier. 

The US group is currently in formal talks to buy Telecom Italia, TIM Brasil's parent.

RESTRUCTURING

This shift is very consistent with Telefónica's strategy. In 2017, the group took a first step by selling 40% of its Telxius infrastructure unit to KKR for 1.28bn euros.

But, more importantly, it is consistent with Telefónica's push to restructure, announced almost four years ago.

In November 2019, Telefónica unveiled an ambitious global plan that consisted of focusing operations on its four key markets, while reducing debt through business simplification, divestiture of assets, partnerships and sales of operations in non-priority markets.

That same month Telefónica brokered an eight-year agreement to use and lease AT&T México's network.

The consequence of that is that Telefónica no longer operates with its own transport network in Mexico, where it also has a leasing agreement with Altán Redes.

Between 2019 and 2022, the company accelerated its strategy.

After unsuccessful attempts to reach a deal with rival América Móvil, the company sold off all of its operations in Central America: Guatemala, Nicaragua and Panama (to Millicom in 2019); Costa Rica (to Liberty Latin America in 2019); and El Salvador (to General International Telecom Limited in 2021).

With the completion of the El Salvador deal in January last year, Telefónica closed an important chapter in the region and rubberstamped its exit from Central America.

INFRA FOR SALE

During this period, the company also divested other non-core businesses in telecom infrastructure, that is, towers and datacenters, stepping up its sales in the last three years as part of its global restructuring.

In 2020, the company transferred control of 1,909 towers in Brazil to its subsidiary Telxius, making similar moves in other markets.

Then, in 2021, Telefónica closed a broader deal to sell the entire tower unit of its Telxius subsidiary to American Tower for 7.70bn euros.

The deal comprised about 30,700 towers maintained and operated by Telxius in Spain and Germany, as well as in Brazil, Peru, Chile and Argentina.

On the datacenter side, Telefónica has focused on accelerating its migration to the cloud and thus shutting down datacenters. 

In 2019, investment fund Asterion reached a deal to acquire 11 datacenters from Telefónica, including in Latin America, which were grouped into a vehicle called Nabiax.

Two years later, Telefónica signed a new agreement with Asterion to acquire a 20% stake in Nabiax in exchange for handing over four datacenters (two in Chile) that it still owned.

Then, in March this year, British investment fund Actis announced a deal to acquire 11 datacenters in Latin America and the US from Nabiax.

COMPARING TARGETS

As part of the Peruvian fiber deal, KKR committed to make investments of US$200mn to more than double the fiber network in Peru to 5.2mn homes by the end of 2026. 

In that country, approximately 88% of households have mobile or fixed internet service, but fewer than 35% have access to fiber optic networks.

Telefónica del Perú and Entel Perú will be anchor tenants, but as a neutral fiber vehicle the idea is to bring in other carriers and ISPs. Considering the experience of On Net Fibra in Chile and Colombia, and even FiBrasil (the fiber JV with CDPQ), this is a challenge.

ALSO READ: Latin America’s 5 biggest neutral fiber networks

On Net Fibra Colombia's initial goal was to reach 2.3mn homes in 2022 and 4.3mn by 2024, covering 90 localities. At present, the JV reports 2.4mn homes passed with fiber. 

As for new clients, some ISPs consider the leasing prices to be too high.

“Unfortunately, their costs are not in line with what we can afford and with our target audience. For the time being, it is better for us to build than to rent,” Mauro Magrini, CEO of Medellín-based internet service provider (ISP) Velonet, told BNamericas last month when asked about hiring On Net Fibra Colombia.

The Telefónica-KKR JV in Chile was announced in February 2021 with the goal of reaching a minimum of 3.5mn homes passed by 2023, up from 2.0mn, and providing wholesale services to more than 40,000 businesses.

According to the latest update, the Chilean On Net Fibra operation has 3.7mn homes passed.

In October, Entel decided to sell its fiber optic network to the JV, which in retrospect now seems to be a forerunner of the partnership announced for the JV in Peru.