Telefónica strengthens itself in the submarine cable while expanding the alliance with Amancio Ortega

The submarine cable once again stands out in Telefónica. The operator and Pontegadea, the investment vehicle of Amancio Ortega, founder of Inditex, have just expanded their agreements in the telecommunications infrastructure business, after closing the joint purchase of 40% of Telxius, which was in the hands of KKR. With the transaction, valued at 216 million euros, Telefónica has increased its stake in the company, whose main asset is the submarine cable network for telcos, while Pontegadea has reached 30%. In February of last year, with the announcement of the aforementioned agreement, Telefónica highlighted that it was reinforcing its ownership of an “extremely relevant” asset.

In this sense, the submarine cable has accelerated the growth trend in income and profitability, at a time of stagnation in other areas.

In the accounts for the third quarter, Telefónica highlighted that Telxius’ submarine cable business maintained its strong commercial traction, with organic revenue growth of 4.9% (18.6% reported), which “along with a good cost management and the collection of an overdue debt, boosted the growth of oibda by 28.9% organic and 47.9% reported”.

In the first nine months of 2022, revenue from this activity grew by 1.1% (10.9% reported) and OIBDA by 13.6% (26.3% reported). In addition, provisioned bandwidth for capacity services grew 46% up to September, and the value of contracts signed with third parties increased 17% year-on-year, as a result of increased demand from hyperscalers (Service providers clouds that have data centers and servers) and the relevant telecom operators.

At the same time, Telxius traffic increased 16% year-on-year in the third quarter, seven percentage points more than in the second and two percentage points more than in the same period of the previous year, according to Telefónica, “despite the enormous growth in previous years, associated with the pandemic.

The company has continued with its strategy of attracting more contracts and deploying new infrastructures. The latest movement is the agreement signed with América Móvil, the Mexican group controlled by Carlos Slim, to deploy a new high-capacity submarine cable to link Guatemala and the US, named Tikal by Telxius and AMX3 by the Mexican operator.

This is the seventh new state-of-the-art cable that the company has added to its network since 2018, in addition to Brusa, Mistral, Tannat, Junior, Marea and Dunant. Telxius, which complements its traditional routes, will have an 82,000 kilometer submarine cable network designed to connect the main hubs of digital data on both sides of the Atlantic.

In the spring of 2021, Telxius and América Móvil announced the arrival of a new submarine fiber optic cable, named Mistral or South Pacific Submarine Cable (SPSC), destined to connect the Latin American Pacific coast, with mooring points in Chile, Peru, Ecuador and Guatemala. Subsequently, they announced different agreements to improve connectivity, through the SPSC Mistral in Ecuador, Peru and Chile.

Throughout 2022, Telxius closed an agreement with Colt so that the operator will connect to its hub in Derio (Vizcaya), to access the main communication nodes in Europe, such as Madrid, Paris, Frankfurt, London or Amsterdam; signed a contract with NJFX, the campus of colocation carrier neutral of the station located in Wall, USA, to give customers on-demand access to redundant submarine cable infrastructure across the Atlantic and Latin America; and signed a cooperation agreement with NIC.br to improve the interconnection of operators and companies in the northeast region of Brazil.

possible sale

In any case, it seems that Telefónica is willing to bet on these assets. The teleco had probed the sale of submarine cables between 2020 and 2021, even going so far as to have advisory investment banks.

However, the company ruled out the sale as it did not receive satisfactory offers. In the market there was talk of a value between 1,500 and 2,000 million euros; and after lowering the need to reduce debt, once the sale of Telxius’s own mobile phone towers was closed, for 7,700 million euros, to American Tower.

The operator did not want to comment.

Capital increase in the Argentine holding company

Capital. Telefónica announced yesterday that it has carried out a capital increase of almost 3.2 million euros in TLH Holdco, the holding company created in 2022 to group its subsidiaries in Argentina. With this movement, the capital has gone on to exceed 85 million.

objectives. With this transaction, Telefónica strengthens the financial structure of TLH Holdco. Company sources indicate that the expansion is intended to provide funds to the new company to meet its operating expenses.

Cleavage. In October, the operator closed the partial spin-off of Telefónica Latinoamérica Holding from the subsidiaries Telefónica Móviles Argentina and Telefónica de Argentina, in favor of TLH Holdco. The corporate change responded to the optimization of the corporate structure and management in Argentina, in line with the actions carried out with Hispam. In recent years, the shares of the Argentine business had been dispersed among different group companies and the parent company itself.

Income. The business in Argentina, a country that is considered a hyperinflationary economy in the Telefónica group, registered an increase in revenue of 39.1% in local currency in the third quarter, “due to greater accesses and the continuous updating of rates.” Oibda grew by 29.2%.