Telxius, Telefónica's infrastructure arm, was established in February 2016. It owns and operates a portfolio comprising nearly 16,300 telecom towers in five countries and manages an international network with around 65,000 km of submarine optical cable, including around 31,000 km owned by Telxius. The Telxius-owned network includes SAM-1 linking the U.S., Central and South America, PCCS (Pacific Caribbean Cable System) and Unisur, which connects Uruguay and Argentina. It also took over Telefónica's share in older subsea consortium cables, including Columbus III, Atlantis II, and FLAG.
Telxius has two new subsea cables that are expected to enter commercial service shortly: BRUSA, linking Brazil, Puerto Rico and the U.S., and MAREA linking the U.S. and Europe in partnership with Google and Facebook. The two projects bring enormous East-West and North-South capacity to the Atlantic. More about these projects below.
It was just over a year ago that Telefónica announced it has reached an agreement with global investment firm KKR Group for the sale of up to a 40% stake of Telxius Telecom, its global telecommunications infrastructure company, for a total of Euro 1,275 million, or Euro 12.75 per share. The deal with KKR implied an enterprise value of Euro 3,678 million for Telxius, or 11.4 times its 2017 EBITDA.
Telefónica's original plan was to seek a public listing for Telxius as an independent company. An attempted initial public offering was announced in September 2016 but subsequently withdrawn in November.
In terms of valuation, the deal with KKR was fairly close to the earlier aspirations for a public listing. KKR is a private equity firm specializing in infrastructure opportunities. As of the end of 2017, KKR had $168 billion of assets under its management.
From what we gather, the Telxius shared infrastructure business is doing well.
The Massive MAREA project
Construction of the highest-capacity subsea cable to cross the Atlantic was officially completed in September 2017. The 6,600 km MAREA subsea cable, which was jointly funded by Microsoft and Facebook, links Virginia Beach, Virginia to Bilbao, Spain. For these two Internet giants, the collaboration represents a significant change for the subsea cable industry, which previously funded major projects by establishing a consortium of telecom carriers, with bandwidth on the system subsequently divided between eight, ten or even more investing parties. MAREA is not only massive in comparison to the projects from just a decade ago, it also follows a more southerly transatlantic route, landing in Europe on the Iberian peninsula. For the American landing, the cable arrives hundreds of miles to the southern coast of Virginia, in proximity to new hyperscale data centre campuses being built by Microsoft and Facebook.
It is also very interesting that the MAREA cable will be managed by Telxius, providing Telefónica’s new infrastructure company with two very reliable customers whose bandwidth needs are certain to skyrocket in coming years. Telefónica’s European fibre backbone will certainly be an option if either of these Internet giants needs their traffic to be carried onward to other European destinations.
The MAREA cable features eight fibre pairs and an initial, estimated design capacity of 160 Tbps. TE SubCom served as the system supply partner for MAREA.
The BRUSA subsea system
BRUSA is Telxius’ new submarine cable linking Rio de Janeiro and Fortaleza (Brazil) with San Juan (Puerto Rico) and Virginia Beach (USA). The 11,000-km cable consists of 8 fibre pairs, with 135 x 100 Gbps per fibre pair, with 4 direct fiber pairs connecting US-Brazil, and 4 fibre pairs entering Puerto Rico and Fortaleza. Alcatel Submarine Networks is the lead supplier. The system is expected to begin operations in the coming weeks.
The SAM-1 subsea system
Telxius also owns and operates the 25,000 km SAM-1 subsea cable connecting the U.S. with Central and South America. It started operations in 2000, connecting the United States, Puerto Rico, Brazil, Argentina, Chile, Peru and Guatemala, and was extended to reach Ecuador and Colombia in 2007. Infinera’s equipment is deployed in this system, enabling on-demand service capabilities in some locations Infinera solutions are also installed on the terrestrial backhaul routes associated with the cable.
Expanding its tower business
The portfolio of 16,300 cellular towers, most of which were transferred from Telefónica, are largely concentrated in Spain (10,741 towers), where the company of course has its historical roots. Germany is its second largest installed base with 2,350 telecom masts, followed by Brazil (1,665 towers), Peru (849 towers), Chile (327 towers), and Argentina (304 towers).
Considering the business possibilities for in the Telxius portfolio, it is clear that the plan must be to add new mobile operator tenants in as many properties as possible. In addition to conventional mobile operators, a new class of Internet of Things operators is emerging.
One company leading in this sector is Sigfox, a French company founded in 2009 that builds wireless networks to connect low-power objects such as electricity meters, industrial sensors, etc. Sigfox uses a unique technology for extreme energy efficiency in the remote sensor and which remains compatible with Bluetooth, GPS 2G/3G/4G, and WiFi. Over the years, Sigfox has expanded its network to over 45 countries. It now claims to serve around 803 million people, with the ambition of extending the network across 60 countries and regions and reaching 1 billion people in 2018.
At Mobile World Congress, Telxius and Sigfox announced a deal to expand the Sigfox network in Germany to cover more than 80 percent of the country. This entails the deployment of Sigfox equipment on a number of the 2,350 telecom towers that Telxius acquired from Telefónica Germany in early 2016. In addition, Sigfox can utilize further selected antenna locations of Telefónica Germany for further expansion of its network. To reach complete network coverage across Germany requires only about 2,500 Sigfox base stations.
Previously, Sigfox Germany has acquired masts and roofs for its base stations directly. Working with Telxius, enables Sigfox to accelerate the rollout of its network as it will no longer have to negotiate directly with property owners.
If the Sigfox partnership in Germany is successful, Telxius certainly offers telecom masts in all of its other market for supporting a global IoT network.
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“Four years ago, Edgecore contributed the industry’s first OCP-ACCEPTED™ network product, a 10G top-of-rack switch,” said George Tchaparian, CEO, Edgecore Networks. “Since then, we have contributed over 15 network product designs as open networking technology and deployments grew to include 25G/100G data center fabrics, deep-buffer data center interconnect switches, service provider access infrastructures, open modular chassis, and campus/branch/wireless networks. Now, Edgecore is introducing the industry’s first 400G open network switch, enabling network operators to respond to growing demands for network capacity, and increasing the bandwidth of open network switches by a factor of 40 over the past four years.”
