UPDATE 2-Orange, Vodafone to build joint fibre optic network in Spain

Wed Mar 13, 2013 10:19am EDT

By Clare Kane and Kate Holton

MADRID/LONDON, March 13 (Reuters) - Orange and Vodafone will invest up to 1 billion euros ($1.3 billion) in a joint fibre optic network in Spain that will bring superfast Internet to 6 million homes, the telecom rivals said on Wednesday.

Both companies are struggling to compete with the fibre optic network of Telefonica, which reaches 2.2 million homes, and would still need the agreement of the former Spanish monopoly to access its connections into individual homes which would otherwise be extremely costly to build.

Orange, a unit of France Telecom, said it and Vodafone would appeal to the telecom regulator if Telefonica did not wish to cooperate. Telefonica said it had always been willing to reach agreements with other operators in Spain and other markets.

The joint venture comes after Orange said in June it would build a fibre optic network, since when it has set up a pilot scheme, although it does not yet offer ultrafast broadband to customers.

"The fibre optic market in Spain is very deficient in terms of competition and could end up ... a monopolised market if this is not corrected," said Orange Spain Chief Executive Jean-Marc Vignolles at a news conference in Madrid.

Vodafone has come under pressure in recent months to acquire fixed-line assets in Europe to help compete with groups like Telefonica which offer customers "quad play" bundles of mobile, fixed-line, broadband and pay-TV.

RAPID PROGRESS

That trend has helped some operators to boost customer loyalty and increase revenues at a time when European consumers are otherwise cutting back on spending.

"The rapid progress of quad play in Spain is likely to have brought this calculation into sharp relief," Citi analysts said in a report, which estimated about half of Vodafone's new mobile customers in Spain were also buying a fixed broadband service.

"We believe that in the fourth quarter of 2012 Vodafone at times saw approaching 50 percent of its mobile gross adds being bundled with fixed broadband," the report said.

The Spanish plan would help Vodafone sidestep the need to acquire fixed line assets, Espirito Santo analyst Nick Brown said. "It negates the requirement to buy (Spanish cable operator) Ono and they could do a similar deal in Germany, which may negate the requirement to buy Kabel Deutschland."

The project would consist of two complementary networks, each reaching around 3 million buildings throughout 50 cities in the country, Orange and Vodafone said. They would be open to third-party participation in the project.

Commercial offerings from both firms will be completely separate, Vodafone Spain Chief Executive Antonio Coimbra said. Vodafone and Orange also said they would guarantee mutual access and use of the infrastructure.

Telefonica signed a deal with broadband specialist Jazztel last year to jointly roll out vertical fibre optic installations.

Jazztel shares were down 5 percent at 5.69 euros at 1322 GMT. Telefonica shares were unchanged.

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