Vodafone to spend €2bn on German broadband

Vodafone’s Germany division is to invest around €2bn of “incremental capital expenditure” by the end of the 2021 calendar year in gigabit ultrafast fibre broadband services, it announced on Monday, which it said are expected to deliver around 13.7 million new gigabit connections to German consumers and enterprises.

The FTSE 100 company said the connections would comprise three areas of focus - ‘Giga-Business’, targeting 100,000 companies in around 2,000 business parks; ‘Giga-Municipality’, where it would partner with local municipalities to reach around a million consumer homes; and ‘Giga-Cable’, where it would upgrade existing cable infrastructure to Vodafone’s 12.6 million cabled homes.

It said ‘Giga-Business’ would involve an incremental investment of between €1.4bn and €1.6bn, while ‘Giga-Municipality would cost €0.2bn-€0.4bn and ‘Giga-Cable’ carried a figure of €0.2bn.

“I am excited to announce this transformational investment plan for Germany, which will bring Gigabit broadband services to millions of consumers and businesses,” said Vodafone Germany CEO Hannes Ametsreiter.

“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.”

Vodafone said it would implement a “success-based model” which would meet the firm’s “disciplined investment criteria”, with an attractive estimated internal rate of return of over 20% and a typical payback period of under four years per business park and under six years per municipality.

It said the investment would be accretive to mid-term service revenue growth at Vodafone Germany by between one and two percentage points, with “above average” incremental EBITDA margins.

Vodafone said it would take an “efficient co-investment approach” with partners, to reduce the annual drag on group cash flow to between €100m and €200m in the initial years of the plan.

Group capital intensity was expected to remain in the 'mid-teens' as a percentage of revenues over the medium-term, Vodafone’s board said, excluding 'gigabit investment plan' capital expenditure which would be disclosed separately going forwards.

“I am confident that these largely success-based investments will deliver incremental revenue growth and attractive returns for Vodafone's shareholders,” Hannes Ametsreiter added.

Gigabit is a term used in the broadband industry to describe ultra-fast connections capable of transferring around one thousand bits of data per second - more than ten time faster than BT’s ‘Infinity 2’ fibre broadband plan in the UK.