New phase, new routes for Telxius
Now with two shareholders after KKR’s exit, the subsea company Telxius has nearly finished replacing its key routes and has begun to look at new ones, CEO Mario Martín tells Alan Burkitt-Gray.
Telefónica and Spanish private investor Pontegadea have completed their restructuring of their shareholding in Telxius Telecom, almost a year after announcing their plans. They now own 70% and 30% of Telxius, respectively, the company announced in January. At the time, Mario Martín, chief executive of Telxius, says: “Today, we complete a cycle and begin a new phase.” Which includes a new phase of cable routes, he adds.
The completion of the restructuring also means that investment company Kohlberg Kravis Roberts (KKR) is no longer a shareholder in Telxius. KKR’s 40% of Telxius was bought by a Telefónica-Pontegadea joint venture called Pontel Participaciones.
Pontegadea is the family investment company of the 86-year-old Spanish billionaire Amancio Ortega, who founded the Inditex group which owns the Zara clothing store chain.
Reports last year said KKR received €215.7 million for its stake, which valued Telxius' equity at around €540 million.
“We’re very proud of the decision of Telefónica and Pontegadea to strengthen their alliance and increase their participation in Telxius,” says Martín. “The closing of this transaction encourages us to continue growing our digital infrastructure business. I’d like to thank KKR for their continued support of our strategy focused on growth and value creation over the years.”
Just days after KKR completed the sale of its Telxius stake, it made a separate non-binding offer for a stake in TIM’s fixed-line network. That bid included the assets and activities of TIM’s last mile network, FiberCop, which it already held a 37.5% stake in, and a stake in Sparkle, TIM’s international arm.
Originally, Telxius owned towers and subsea cables, but American Tower bought that part of the business. The €7.7 billion cash deal was announced in January 2021, and it was completed in June 2021. The towers are in Spain, Germany, Brazil, Peru, Chile and Argentina.
KKR did well out of its sale of Telxius, suggests Martín. “They monetised at 30 times Ebitda. It was natural for KKR to [sell].” But he admits that KKR “probably exited sooner than we anticipated at the beginning”. However, Martín sees that as a positive because “the growth was delivered sooner than anticipated”. It created “best in class returns for KKR. For them it was natural to exit the company”.
The deal saw no new shareholders coming into Telxius. “We did have several options, but at the moment that KKR indicated they would exit, both Telefónica and Pontegadea indicated they wanted to buy out the KKR stake.” Hence “the other shareholders immediately increased their stakes”, he says, meaning Telefónica and Pontegadea. Martín does not expect “significant changes” to the way Telxius is managed.
“For submarine cable, we’ve developed a state-of-the-art network. We’ve increased the length 2.6 times to 82,000km, and we have put into service seven next-generation systems.”
In mid-January, Telxius and América Móvil announced a new cable that will connect Puerto Barrios, Guatemala, with Boca Raton, Florida, with another possible landing in Cancún, Mexico, with an initial estimated capacity of 190Tbps.
In a release, the companies said the cable will provide a key route in the Caribbean with reliability and security. But they gave it different names: América Móvil uses AMX3, while Telxius calls it ‘Tikal’ – the name of an ancient Mayan city in northern Guatemala’s rainforests, which are a national park.
As for the possible Cancún landing, Martín says the companies “are evaluating different options” and there may be “other branching units. We have not made a decision yet”.
Three cables currently land at Puerto Barrios, including América Móvil’s AMX–1. América Móvil’s cable dates from 2014 and the others are from 2001, which is one of the issues Telxius is addressing. There was high level of investment in the Caribbean two decades ago, but today many are in need of replacement.
“Out of the seven next-generation systems we’ve deployed or have announced, five are in… Latin America. We’ll continue to invest in the region,” says Martín.
These new cables are being designed to have lifetimes of 25 years, he said. But Telxius is looking at ways to extend the life of the existing infrastructure. But at some point, the older cables will be shut down. As for when? “It depends on the capacity of the system,” says Martín. “In many cases it is not viable to continue a system, because it’s not competitive with new cables.
Martín lists many major carriers as Telxius’s customers, including Arelion, Colt, Exa and, of course, Telefónica itself. “Plus the hyperscalers – they’re also users of Telxius. We landed Google’s Grace Hopper cable,” he adds, referring to a 16-fibre pair running between New York and Europe, where in lands in Spain and the United Kingdom.
Six of Telxius’s cable systems have been developed with partners that include Meta, Microsoft, América Móvil and Google, he notes.
“We also have different projects that are now being analysed,” he adds. These will be in the company’s “core markets”, which he identifies as Europe to the United States, and the United States to the rest of the Americas.
“In the last few years, we’ve been working as top priority on routes that are fundamental to the business. Now that phase is completed, we’re entering a new phase, expanding to new services.” When I ask where those new routes will run, Martín just smiles.