Vodafone earmarks $2.4bn for broadband expansion in Germany

Vodafone has again demonstrated its commitment to broadband this week, setting aside €2bn ($2.4bn) in capex to drive 13.7m new ultrafast fiber connections in Germany by the end of 2021 – a plan which has clearly proved much easier to slide past regulators compared to similar attempts on the UK telco’s home soil.

The cash pledge covers three plans of action, Giga-Business, Giga-Municipality and Giga-Cable – of which Giga-Business is set to receive the largest funding injection as Vodafone prioritizes targeting new business customers.

Giga-Business will account for €1.6bn ($1.9bn) of the total broadband funding pot over the four-year time frame, heavily outweighing the €200m ($240m) assigned to its urban consumer cable project Giga-Cable and between €200m and €400m ($240m to $481m) for Giga-Municipality, the rural expansion effort.

The catch here, however, is that Vodafone will only put pen to the Giga-Business check if 40% of companies involved in the project sign up for Vodafone services. This could potentially lead on to some anti-competitive backlash if the rival operators see fit to complain, although the news is significant in Germany as incumbent operator Deutsche Telekom has been stubbornly resisting heavy investment in FTTP infrastructure – giving it little merit for objection. But this could be set to change as of 2019, when DT said it expects to increase FTTP investments, instead of focusing on vectoring – technology which some industry observers have accused of being outdated.

Vodafone is adopting a similar strategy in Germany to the one it has tried to implement in the UK, by helping to pay for improved fiber for BT Openreach, the British Telecom subsidiary which manages most of the UK broadband access network and recently had to be separated out at an arm’s length from BT. By providing investments and therefore not taking on 100% of the project itself, Vodafone can dictate the pace of change as well as the pricing points for future broadband – keeping down the cost of building out fiber.

In Germany, the project involves partner companies who will take on the bulk of infrastructure deployments; infrastructure which Vodafone will then acquire, therefore saving itself a great deal of upfront costs. The primary partner is German fiber network firm Deutsche Glasfaser, which will assist Vodafone in targeting some 100,000 organizations in 2,000 business parks across the country. Additional partner companies have not yet been named, but Vodafone cited those with “specialist fiber skills”.

For the past eight or nine years, Wireless Watch’s sister service, Faultline Online Reporter, which analyzes digital video and TV markets and technologies, has been saying that Vodafone needs to stop being a purely cellular operator and establish physical wired infrastructure in the ground, in order to give it sufficient supply of cellular backhaul. This is increasingly important with 5G and is critical in all of its strongest European countries, and it has acted in Germany and Spain, by acquiring local cable operators, and in Italy by acquiring ISP lines.

In the UK, it relies entirely on British Telecom for its cellular backhaul and every time it threatened, in the past, to build out its own wireless backhaul, BT simply dropped its prices to bring Vodafone back to the table. Even in the Netherlands, prior to deciding to merge with Liberty Global there, Vodafone had embarked on a fiber build-out.

Its Giga-Cable project, meanwhile, will involve upgrading existing cable infrastructure for the 12.6m cable homes it passes in Germany, which it inherited from the acquisition of Kabel Deutschland.  Using DOCSIS 3.1 broadband technology, Vodafone aims to enhance the speed of its entire cable footprint from its current top speed of 500Mbps, up to 1Gbps.

In adopting DOCSIS 3.1, Vodafone says it has slashed its initial four-year estimate of deploying gigabit speeds, and now claims that ultrafast speeds will be available in German cities as soon as early next year, spending just $240m in the process, excluding CPE. It expects this investment to start paying back in under four years.

Its rural project, Giga-Municipality, took a back seat in the announcement, but is equally important. Vodafone says it plans to team up with local municipalities, which will build out their own passive infrastructure to homes while Vodafone will operate the networks under a rental agreement.

Similarly, Vodafone will only begin the network build out once around one third of homes in a municipality have committed to purchase fiber services from Vodafone. Giga-Municipality aims to reach around 1m rural homes by 2021, spending a top estimate of $480m on infrastructure, including CPE, with potential for the government to lend its support to the project via fiber subsidies.

Vodafone Germany picked up 100,000 broadband households in the last quarter, of which 65,000 are on cable and the remainder on DSL – nearing 6.4m broadband subscribers in total.

The operator holds 7.7m video customers in Germany, while Liberty Global’s Unitymedia has 6.4m, Deutsche Telekom has picked up 2.7m IPTV customers, and Sky Deutschland recently passed the 5m milestone.

Vodafone Germany says its Gigabit investment plan expects to increase mid-term service revenue growth by between one and two percentage points, with above average incremental EBITDA margins.

It’s safe to say that the ball has finally started rolling in fiber in Germany, now with 5m users, up over 1m from last year, while copper rose just 48,000 in the same period.
Vodafone Germany CEO Hannes Ametsreiter said, “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.”