Telefónica to create new company to unbundle UK landline network, 100% controlled by Virgin Media O2

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Renta 4| Telefónica and its UK partner Virgin Media have announced the creation of a subsidiary that aims to spin off fixed line assets and accelerate the rollout of broadband in the UK.

Virgin Media O2 (VMO2) has a deployment of 16.7 million Real Estate Units and aims to reach 23 million by 2026.

The new company (netco) would be 100% controlled by Virgin Media O2, although this new structure would allow it to bring in new investors, as Telefónica has done in its other three main markets (Spain, Germany and Brazil) and in several HispAm countries (Chile, Colombia, Peru). The entry of a new investor would allow it to finance the division, reducing its debt, which has high multiples (net debt/EBITDA 23e >5x), accelerate the rollout of fibre by sharing investments and attract companies that do not have a network.

VMO2 is the second largest fibre operator in the UK behind Openreach (British Telecom).

Assessment: Positive but expected news. The management already announced at their November 2023 Investor Day that they had different options in the UK fibre business and we believe that the announcement of the spin-off of the fixed line assets is a logical and coherent step with their strategy.

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