Telefónica Creates Infrastructure Company

Telefónica set up a firm called Telxius to house its global infrastructure assets, with a brief to get involved with growth opportunities “including the possibility of incorporating third party assets”.

The business will be headed by Alberto Horcajo, currently CFO at Telefónica Brasil.

Initial assets include around 15,000 Telefónica telecommunication towers in Spain and other countries, as well as the Telefónica Group’s international network of 31,000 km of submarine fibre optic cable.
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The creation of Telxius “is part of the optimization strategy for the Telefónica Group asset portfolio,” the operator said, and will enable the management of the Telefónica Group’s infrastructure on a global scale with a more specialized and focused approach.

The idea is to offer more services to other operators, as well as improve the return on capital invested. In addition, the new move will allow Telxius “to participate in the growth opportunities that exist in the industry, including the possibility of incorporating third party assets”, which seems like a reference to M&A possibilities for the new firm.
In addition to its domestic towers and international undersea cable, Telefónica also has a backbone network connecting more than 40 countries in Europe and the Americas, including the US.

“Over the coming months, a number of newly created companies, including the aforementioned assets, will be gradually integrated into Telxius,” said the statement.
Last month it was reported that Telefónica was working on a spin-off of its domestic infrastructure unit and could either list it or look for a trade buyer for a minority stake. A source placed a valuation of between €5 billion and €6 billion on the unit.

The current announcement regarding Telxius makes no mention of a potential sale or listing.

Telefónica previously sold more than 1,000 masts in its home market to Spanish infrastructure firm Cellnex several years ago.

Source:  Mobile World Live

JRC ANALYSIS:

It is still unclear why Telefónica has created Telxius. The initial rumor that there was to be an IPO appears to have dissipated and the idea that Telefónica is no longer strategically focused on infrastructure cannot be the case with the very recent announcement of a new Telefónica-owned submarine fiber optic cable to be built between Brazil and U.S. The agglomeration of mobile and submarine assets is also counter-intuitive.
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According to Bloomberg, Alberto Manuel Horcajo Aguirre has been the Director of Finance and Control & Investor Relations Officer of Telefónica Brasil S.A. since August 7, 2013 and served as its Chief Executive Officer and General & Executive Officer since March 2015. Mr. Horcajo Aguirre served as the Chief Executive Officer and Chairman of Atento, a leading provider of customer relations services and solutions in Latin America and a subsidiary of Telefonica S.A. since 2001. He serves as Investor Relations Officer at Telefónica Brasil Investor Relations. He served as Head of Purchasing at Telefónica, S.A. He began his career at Bankers Trust Company as a partner in the European Merchant Banking division. Later he became Chief Executive Officer of Transportes Azkar. He served as Financial Director for Beta Capital SV, S.A., where he also held a position as financial Consultant for one of Spain’s major brokerage houses. Mr. Horcajo holds a Law degree from Madrid’s Complutense University and a master in business administration and a master degree in Public and International Affairs from Columbia University.
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Given Manuel Horcajo's background, it would appear that the creation of Telxius is an attempt by Telefónica to get more return on its assets by removing the control of local Telefónica subsidiaries and allowing partnerships to be created with 3rd Parties who may in fact be competitors in certain markets. The possibility that Telxius is also an M&A vehicle is intriguing but less likely.

Whether or not Telefónica succeeds with its as yet unclear objectives in setting up Telxius, it has concentrated its infrastructure assets under one financial heading so that if, in future, the carrier and content provider market shifts away from owning infrastructure, Telefónica will be well-positioned to consummate that shift quickly and efficiently.