• Telefónica has been optimising its Latin American portfolio over the past few years
• It had already struck a mobile network sharing deal with Millicom in Colombia
• Now it has agreed to sell Telefónica Colombia (Coltel) to Millicom for $400m
• Millicom also plans to take full control of its existing Colombian business TigoUne and combine it with Coltel to create a large, single operator to rival Claro

As part of its ongoing efforts to right-size its operations in Latin America,  Telefónica has entered into a non-binding agreement to sell Telefónica Colombia (Coltel) to Millicom for $400m: The Spanish giant referenced the deal in its investor presentation as it reported its second quarter financials on Wednesday morning, while Millicom issued a statement to its investors about the planned deal. 

While Telefónica’s Latin American unit, Telefónica Hispanoamérica, is keen to reduce its exposure to markets that aren’t key to its regional strategy (either through collaborations or divestments), Millicom clearly believes it can make a go of its business in Colombia by combining Coltel with its existing operation in the country, TigoUne. The two operators had already forged plans to collaborate in Colombia by recently agreeing to a mobile network sharing agreement in the country – see this announcement.  

Millicom’s aim is to create a larger and stronger rival to Colombia’s market leader, Claro, which is part of the América Móvil empire.

Millicom plans to acquire Telefónica’s 67.5% stake in Coltel for $400m and buy the other 32.5% stake held by the Colombian government. It then plans to acquire the 50% stake in TigoUne that it doesn’t currently own from utility company Empresas Públicas de Medellin’s (EPM) and then combine TigoUne and Coltel to create a single telco. In total, the deals are set to cost Millicom about $1bn. 

Coltel, which offers its services using the Movistar brand, has 20.7 million mobile customers, 1.5 million broadband customers (of which 1.3 million are connected with fibre lines), 841,000 pay-TV customers and 1.4 million fixed voice connections. In the first half of this year it generated revenues of €745m, up by 7.5% year on year, and reported earnings before interest, taxes, depreciation and amortisation (EBITDA) of €187, up 15.5%. 

TigoUne generated revenues of $355m in the first quarter of this year, has 11.6 million mobile customers and has 1.5 million users of its various fixed line services. 

Back-of-the-envelope calculations suggest the combined operator would generate annual revenues of around $3bn, and would have more than 32 million mobile customers and more than 2 million fixed broadband customers. 

Market leader Claro has just over 40 million mobile customers and 3.4 million fixed broadband customers and generates annual revenues of around $3.75bn.

According to Millicom, “the proposed combined entity would rejuvenate Colombia’s telecom sector by forming a robust telecom entity with the necessary scale and financial capacity to support the significant network and spectrum investments required to achieve Colombia’s ambitious digital inclusion objectives. Colombia will gain a second large-scale and financially viable operator at a crucial moment. This strengthened operator would bolster the digitalisation of Colombia, ensure broader access to modern digital services across the country and advance the deployment of both fibre and 5G technologies across the country, thereby enabling faster and more reliable services and an improved customer experience.”

The challenge for Millicom, which has previously acquired other Telefónica assets in the region, will be to persuade regulators that it makes sense for a country of about 52 million people to have just two strong mobile network operators which, despite the presence of several mobile virtual network operators (MVNOs), would leave the country with a telco duopoly.  

If the deal goes through, Telefónica Hispanoamérica would be left with operations in Argentina, Chile, Ecuador, Uruguay, Venezuela, Mexico and Peru, as well as having its separate operation in Brazil. 

The announcement of the deal comes at a pivotal time for Millicom, which is currently fending off an unwelcome takeover bid from Iliad’s owner and existing Millicom shareholder Xavier Niel: At the start of July the telecom sector entrepreneur’s investment vehicle, Atlas Investissement, tabled a takeover bid that values MIllicom at $4.1bn, but the Millicom board rejected the offer in mid-July stating that it “significantly” undervalues the communications service provider. 

- Ray Le Maistre, Editorial Director, TelecomTV