Brazil’s Lefosse Advogados has helped the local arm of Spain’s Telefónica join forces with Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) to launch a fibre optics wholesale company through an agreement worth 1.8 billion reais (US$306 million).
CDPQ enlisted Brazil’s Machado Meyer Advogados. Pinheiro Neto Advogados advised Telefónica’s Brazilian mobile subsidiary Vivo – which will hold a minority stake in the new venture. Telefónica’s infrastructure subsidiary, which also holds a portion of the shares in the new company, relied on in-house counsel for the deal.
The deal was signed on 2 March and is subject to regulatory approval from Brazil’s antitrust body CADE.
The deal establishes FiBrasil, which will build, develop and operate new fibre optics networks. CDPQ and Telefónica will both hold a 50% stake in the new entity, with Telefónica’s share split between its Brazilian subsidiary Vivo and its global infrastructure management business Telefónica Infra. They will hold 25% each.
The US$306 million value represents the amount that CDPQ plans to invest in the venture, in exchange for half of FiBrasil’s shares.
FiBrasil will distribute and operate fibre optic networks across several mid-sized Brazilian cities outside of the state of São Paulo, where Telefónica’s Brazilian arm is based. The company will fund and distribute fibre-to-the-home (FTTH) assets to local telecoms providers, which will then package and sell the broadband infrastructure to customers.
The joint venture has an initial access to a portfolio of 1.6 million homes already connected to Telefónica’s Brazilian broadband network. FiBrasil intends to elevate that figure to 5.5 million by 2025. Fibre-optic broadband provides faster, sturdier and longer-lasting broadband connections that also travel further than traditional copper cable-powered networks. According to a study by the Organisation for Economic Co-operation and Development (OECD), an average of 24% of Brazil’s population is subscribed to a fibre-optic network, which is below the average in other OECD countries, which was 27% in mid-2019.
With the transaction, CDPQ diversifies its portfolio of infrastructure assets and helps accelerate the roll-out of speedier fibre-optic broadband in Brazil. Telefónica will provide telecoms and wireless expertise to the venture, which will also contribute to the growth of its mobile-operating subsidiary Vivo. Vivo will operate as FiBrasil’s anchor business in the deal, which means that it will be its main service provider. That is likely to help consolidate Vivo as a leading provider of telecoms, mobile and digital communications services in the country. Vivo plans to increase the reach of its fibre-optic business to 24 million homes by 2024, up from 16 million at the end of 2020.
The latest agreement comes after Telefónica made a similar move in Chile by launching a fibre optic wholesaler in that country last month. US private equity company KKR invested US$1 billion in exchange for a majority stake in the joint venture, which is the country’s first open access wholesale fibre optics venture. The new platform is expected to reach 3.5 million Chilean households by 2023.
Telefónica is among the largest telecoms groups in the world, with over 345 million customers. It has Latin American operations in Brazil, Chile, Colombia, and Peru, among others. Its Brazilian arm has 93 million customers and an average annual revenue of US$12 billion. Over 90% of users of Brazil’s 4G network are connected through Vivo’s network, while its fibre optic business reaches 266 cities across Brazil.
Canada’s CDPQ is an active investor in Latin America and counts US$290 billion worth of assets under management worldwide. Last year, it snapped up a minority stake in Brazilian state-owned oil group Petrobras’ pipeline subsidiary TAG in a US$94 million deal, which helped bring one of the largest-ever privatisations in Brazil to a close. CDPQ also formed part of the consortium that snapped up a 90% stake in the pipeline for a landmark US$8.7 billion in the first portion of that transaction.
Counsel to Telefónica
- Lefosse Advogados: Partners Mirella Mie Abe, Ricardo Prado, Mauricio Paschoal, Ricardo Bolan and José Carlos Berardo, and associates Rodrigo Cunha, Pedro Simões, Douglas Fukuhara, Sarah Cellim and Dante Zanotti
Counsel to CDPQ
- Machado Meyer Advogados: Partners Mauro Bardawil Penteado and Rafael Arsie Contin, and associate Antonio Paulo Kubli Vieira.
Counsel to Vivo
- In-house counsel - Carolina Simões Cardoso, Nathalia Pereira Leite, Nadia Furuzawa Santos and Juliana Carvalho Sampaio Tourinho, Camilla Tedeschi de Toledo Tapias, José Augusto de Leça Pereira, Rodrigo Macias de Oliveira, Flávia Lang de Castro, Victor de Oliveira Curvo e Carolina Pugliesi Silva, Vasco Gruber Franco and Mauricio Rodrigues de Lima
- Pinheiro Neto Advogados: Partner Giancarlo Chamma Matarazzo and associate Tatiana Bomfim
Counsel to Telefónica Infra
- In-house counsel – Cristina Zurita Chamorro and Sonia Rodriguez Garcia
(Latin Lawyer - 10.03.2021)