Altice to sell half of its French fiber business, upping challenge to Orange

French-based cable group Altice has decided to sell half of its fiber-to-the-home (FTTH) business, which is a symptom of a broader trend – for many telcos to shift away from infrastructure ownership as values decline and capex cycles shorten; and to move towards more profitable monetization of infrastructure, which may belong to multiple parties.

This has already happened in other areas of telecoms infrastructure, such as cell towers, and while some markets, notably the USA, are seeing  a gold rush around fiber, in other areas, operators are looking to offload some physical assets and become more nimble and digitally-driven.

Altice will sell a 49.99% stake in its French infrastructure wholesale unit SFR FTTH to a trio of investment firms – Allianz Capital, AXA IM-Real Assets, and Omers – for €1.8bn, implying an enterprise value of €3.6bn for the business as a whole. That, it says, will make it more economic for SFR FTTH to pass 5m homes with FTTH over the next four years to mount a credible challenge to incumbent Orange. It will also help Altice reduce its debt mountain.

Advanced countries such as France will have more than 50% of households taking 1Gbps broadband services by 2023, as revealed by the Gigabit Broadband report and by a forecast from our sister service Rethink TV. Altice wants to get ahead of the pack by raising these new funds.

In doing so, Altice has given three major infrastructure investors significant influence in the French fiber market. But can their expertise in energy and transport translate to broadband, urging other European operators to strike similar deals, or is the lack of experience in the consumer and network technology sectors make this destined for failure?

Through the sale, Altice Europe claims to have created the leading FTTH infrastructure wholesaler in France, and “the only nationwide infrastructure challenger to the incumbent with a very strong competitive position on its footprint”.

SFR FTTH claims 1m homes will be passed by the end of this year, deploying fiber “massively” with more to be franchised or acquired. It says it will sell wholesale services to all operators at the same terms and conditions, and will source its technical services from Altice France for the construction, subscriber connection and ongoing maintenance of its FTTH network. Combined with Altice France’s other fixed infrastructure assets, the group owns a FTTB network covering 9m homes, delivering speeds of up to 1Gbps, and 2.5m FTTH homes in some of the country’s most densely populated areas.

Today, about 16% of homes in France have 1 Gbps lines, representing just over 4m, forecast to rise to 58.5% by 2023, second only to South Korea in terms of penetration, according to Rethink TV data. The rise of France as Europe’s outright broadband force is down to the 4 converged telco style operators offering fiber and fighting aggressively against each other, and one of these also offers DOCSIS.

Altice has become an increasing force in French TV, having negotiated exclusive deals with Discovery and NBCUniversal, while building its own portfolio of premium channels, and it launched an Android TV device back in July called the Connect TV de SFR. This comes with a voice-activated remote control and 4K support, retailing at €69.

Two weeks ago, it reported its best quarter since 2005, clawing back at least 1m French customers in the year to date, more than it lost in the previous 3 years. For Q3, it added 166,000 customers, 52,000 in broadband, against a 75,000 loss last year, and 64,000 additions to its fiber base and today has 40% of its French broadband customers on fiber.

Altice also launched an OTT service called RMC Sport in Q3, gaining 114,000 customers. Mobile accounted for 378,000 net additions which compares with just 16,000 last year, which it puts down to having Champions League rights. It says its Portugal Telecom acquisition is also performing well, but only added 8,000 net additional customers there, against losses last year. It gained 44,000 fiber customers and 37,000 mobile.

However, Altice revenue fell 4.6% year on year and its margin was down too, but spent €706m on capex and a colossal €1.01bn for the Champions League rights.

Patrick Drahi, founder of Altice, said: “I am very pleased that three of the most renowned infrastructure investors in the world are becoming our partners and committing large resources to build the leading FTTH wholesaler in Europe. With this transformational transaction and the various tower sales and partnerships announced earlier this year, Altice Europe has been able to crystallize €8bn of infrastructure value and obtain cash proceeds of €4bn in total in a few months. Through these transactions, Altice France and Altice Europe will deleverage and will have access to new and cheaper liquidity to invest in its fiber infrastructure.”

As well as operating in France, Altice Europe owns Meo in Portugal, Hot in Israel and Altice Dominicana in the Dominican Republic.