Networking for Growth
EQT’s acquisition of fiber network operator IP-Only kicks off the ambition to create a major Swedish provider of open networks. Accelerated investments in infrastructure and the potential consolidation of Metro Area Networks form the cornerstones of the plan.
The rapid adoption of streaming video, TV-on-demand and other capacity-demanding services has led to an explosion of internet traffic which is stretching the capacity of the existing infrastructure. Optical fibre is the only technology capable of dealing with this flood of data in the networks and in order to meet the demand of the modern household, it is increasingly being deployed all the way into houses and apartments – so called fiber-to-the home.
According to a forecast from technology company Cisco Inc, global internet traffic is expected to quadruple between 2011 and 2016, largely due the exploding consumption of video over the internet. In the same period, the number of internet connections and devices is expected to double to almost 19 billion.
This surge is one of the driving forces behind the acquisition of Swedish fiber network company IP-Only in May 2013. While the company has a solid business of its own, it is also ideally suited to act as a catalyst in consolidating the Metro Area Network (MAN) market in Sweden. There are over 150 MAN’s in Sweden, mostly owned by municipalities.
“We see great potential in expanding IP-Only’s existing business but the true potential here lies in combining MANs with IP-Only’s pan-Nordic trunk network. We see attractive synergies in developing new services and increasing efficiency that will benefit all stakeholders, customers, local communities and the investors,” says Gunnar Asp, Chairman of the board of IP-Only.
IP-Only owns and operates a high-capacity fiber network linking the Nordic capitals Stockholm, Oslo, Copenhagen and Helsinki as well as Sweden’s second and third largest cities Gothenburg and Malmoe. In addition, IP-Only owns Metro Area Networks (MAN) in Sweden, including the largest MAN in Uppsala.
In Sweden, residential fiber has been developed by traditional telecom operators but also by municipalities which have built city rings with unlit fiber where capacity is then leased to independent service operators. These city rings are increasingly being expanded to reach directly into households and currently around one million Swedish households have fiber connections at home, according to The Swedish Post and Telecom Authority.
“Sweden has come a long way in bringing fiber into the home and Municipalities have been good at constructing MANs, not least by combining the laying of fiber with other infrastructure work in roads, water, sewage and electricity but there are more than 150 fiber networks. We believe EQT and IP-Only can play an important role in consolidating and co-ordinating these networks and create a new strong player on the Swedish fiber network market”, says Thomas von Koch, partner at EQT Partners, investment advisor to EQT.
While municipalities may be strapped for cash needed to continue developing and extend their MAN’s EQT instead sees a great opportunity.
“EQT can create value by continuing to invest in these fiber networks. EQT has the capital to expand them and create more connections,” says Thomas von Koch. He anticipates a ring of smaller add-on acquisitions of primarily MAN’s over a three to five year period.
EQT already has important investments in the communication and network industry through Norwegian portfolio companies Infiber and Broadnet. They are being combined to create the second largest fiber network operator with a total of 25,000 kilometres of fiber.
“In Norway, the ambition is to build a fine-meshed fiber network over the next 5-7 years and in Sweden the ambition, in principle, is similar although it may take longer time, says Thomas von Koch. Like in Sweden a buy-and-build strategy is also pursued in Norway where networks today owned by utility providers could be potential targets.
EQT is no newcomer to the network and communication industry and earlier investments include success stories such as cable-TV companies StjärnTV and Comhem in Sweden and KBW in Germany. Comhem and KBW were both spearheading the introduction of triple play services where cable TV, broadband and telephony are bundled into one offering and fast broadband over the cable-TV network.