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Vodafone to invest €2B in German gigabit connections

Vodafone plans to invest about €2 billion over the next four years to provide around 13.7 million new gigabit broadband connections to homes and businesses in Germany, its biggest European market.

Under the Gigabit Investment Plan, Vodafone Germany will target 100,000 companies in around 2,000 business parks, one million homes in rural areas, and 12.6 million cable customers.

The lion’s share of the investment – up to €1.6 million – will be used to install fibre to business parks across the country, which will be selected based on their proximity to Vodafone’s existing infrastructure.

The remainder will be used to reach consumers, by working with municipal authorities to connect their FTTH networks to Vodafone’s backbone, and accelerating plans to upgrade Vodafone’s Kabel Deutschland infrastructure to DOCSIS 3.1.

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.’

The news signals that broadband competition is starting to bite in Germany. Rival Deutsche Telekom has just launched gigabit services, even while expressing concerns about demand for such high speeds (Deutsche Telekom: The future is not just about FTTH).

Vodafone said it is responding to evidence that local enterprises and communities of all sizes want to move away from slow copper-based internet services; the number of enterprise bids that include fibre has doubled since last year, according to the operator.

The UK-headquarterd company also said the plan had an estimated internal rate of return (IRR) better than 20 per cent and a typical payback period of less than four years per business park and under six years per municipality. In other words, the business case is solid.

Vodafone's Gigabit Investment Plan comprises three related initiatives.

The Giga-Business initiative builds on the partnership agreement announced in July 2017 with Deutsche Glasfaser to reach 19 of Düsseldorf’s industrial and commercial business parks by early 2018 (see Deutsche Glasfiber and Vodafone Germany to build business fibre networks).

Now, Vodafone has set aside €1.4–€1.6 billion to co-invest with a number of partners with either specialist fibre skills or relevant infrastructure assets, including Deutsche Glasfaser. The strategic 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 expects to take full ownership of the passive infrastructure. A minimum take-up of around 40 per cent of the businesses in each individual park will be required before the investment can proceed.This approach is cash-efficient, the operator said, because it limits the up-front cash outflow to around one third of the total build and customer equipment costs.

The Giga-Municipality initiative sees Vodafone pursuing a co-investment model with municipal authorities in rural areas at a cost to itself of €0.2 – €0.4 billion. In this approach, 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.

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 customer premises equipment) and paying the connection costs for each household. Build-outs will only begin once around one third of the homes in a municipality have committed to buy fibre services.

The Giga-Cable strand of Vodafone’s plan will see DOCSIS 3.1 services enabled across the entire cable footprint (acquired from Kabel Deutschland in 2014) over two years compared to the previous four-year rollout plan. This will double the top speed available to customers, from 500Mb/s launched in July this year, up to 1Gb/s. Customers in the largest German cities will be able to order gigabit connections starting in 2018.

The cable upgrade will cost about €0.2 billion (excluding customer equipment). The payback period for this initiative is less than four years, because the substantial increase in network capacity provided by DOCSIS 3.1 reduces the need for additional capacity investments.

The operator reckons the investment will increase its service revenue growth rate in Germany by one to two percentage points compared to prior expectations, starting from the second full year of the plan (that is, the fiscal year ending on 31 March 2020). In the most recent fiscal year, Vodafone Germany generated €10 billion in service revenues, with 39 per cent coming from its fixed-line business.

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