Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:06:14} What was the reason you left Versatel?

{audio:0:06:22} The whole time I knew Versatel, it was a very entrepreneurial company driven by private equity companies, with a very strict but very goal-oriented management. This changed considerably with the sale to United Internet. Mr. Dommermuth is to be admired. He's a great entrepreneur but he has a highlander principle, so it only can be one. All decisions needed to be done in Montabaur. Being a very busy person, sometimes we had to wait weeks for a decision. This was not motivating. So on the whole, many people left and, eventually, I did the same.

{audio:0:07:30} Has this changed today or do you still talk to some of your old Versatel colleagues?

{audio:0:07:36} I personally believe Mr. Dommermuth was highly disappointed about the acquisition and how it went after because he had other high hopes of what he wanted to achieve and then was confronted with reality. 

{audio:0:08:14} I think it has changed because most of them managed to find their role within the UI Group in a way, as the infrastructure player around the core business. However, there's still a lot of challenges which are not solved. I saw lots of management changes in the last couple of years, especially in terms of sales, but also in technology and operations department. I think it was two years back in a workshop at Versatel – it was a technical workshop with external or internal managers – and the few people I knew, they were all very, very frustrated because there was so much knowledge, know-how and experience gone over the time. So that’s my impression.

{audio:0:09:19} Regarding the fiber penetration in Germany, all the time people speak about now is the right time fiber is coming big time to the market and I think this has basically been a disappointment every time. What are the reasons for it and is now the time that this is coming or how do you see it?

{audio:0:09:49} It's true. We were one of the first providers in the market to start betting on fiber and it seems we were way too early, which is a problem. We were doing so just because Versatel was the third biggest DSL player in the market with our own DSL network. The only thing Versatel owned was a large fiber infrastructure inherited by former acquisitions but not utilized at all. We thought it was a good idea and fiber was the way to go for the future. This was the change we implemented in a project called Transform over the years 2012 to 2014. After the acquisition through United Internet, we were very focused and tried to invest and penetrate the fiber footprint.

{audio:0:10:49} But the problem is, it’s like the term digitalization. Polytech companies, everybody wants it but many people have a different understanding and only very few really understand it. When it comes to cost and who's going to pay then that's a different story. I think that's the same as fiber. We started and I think there was a right decision and I think it's still valid today to start with business networks because private people, there's only very few who really want to have fiber unless it costs the same. It’s very cost focused for many people, especially with the private residential business market.

{audio:0:11:42} You probably may know that people are hunting for a €5 discount in their mobile contracts and it's the same when you have to pay €30 euros for these contracts with 50Mb. An ordinary private household will not have any problems with 50Mb unless you have Netflix HD and you have two kids who are 15, 16-year-olds who are watching YouTube at the same time in high definition. I would say 95% of private households have no problem with DSL 50Mb and only very few are willing to pay and upgrade for fiber penetration.

{audio:0:12:33} It's businesses who should be the driver and when people talk about the business markets, there is no such thing as a business market. We did several market segmentation projects at Versatel to really directly address the certain market segments, their specific needs, which is incredibly difficult but generally speaking it's very generic. It's the multinationals, big corporations with lots of locations who definitely and urgently need connection solutions, networks, own private networks and then need to have their locations and production sites connected.

{audio:0:13:17} So they're in high demand and those are the companies who, even in 2011 and before, had fiber connections because in a complex corporate network, the main location with maybe 1,000 or 5,000 employees or even a production site, a factory, even 10 years ago they needed a fiber connection in order to have a stable, reliable service.

{audio:0:13:46} Today all the corporations above 1,000 people are basically on fiber and now it’s about the smaller companies?

{audio:0:13:59} The approach is to identify business clusters in cities where there is no fiber. Can you explain for me a bit on a go-to-market approach like this, how do you identify these areas? How do you set up the project, talk to the local businesses and the communities and then also conduct a bid and what is the time horizon for such a project? How large are these projects usually and when do you start building? First you collect the data and contacts and so on?

{audio:0:14:40} With several stakeholders including KKR but also Mr. Dommermuth himself, we tried numerous ways to approach these segments and, until 2019, I think all big players had that trouble, including Deutsche Telekom and Vodafone. Vodafone halted their business area campaign temporarily, so they all had the same problem. The main issue is to really identify the companies which are present at a very local and micro level site; secondly, to identify the decision-makers; and thirdly, to identify what the connectivity needs are.

{audio:0:15:37} You can segment these companies by their company size so there are ways to enrich the data with how many employees and sales revenue clusters which is maybe rough but it’s a first indication. The second and probably better indication is the industry cluster because, if you have a construction company with 30 employees and 20 of these employees are digging the whole day, then you probably don't have connectivity needs. But maybe a small internet agency that has 15 people, they will have very high benefits; the industry cluster is a high indicator.

{audio:0:16:20} Then it comes to the real need for connectivity is companies which are separated in several locations that have a lot of collaboration needs. Mainly, those companies have increasingly infrastructure in the cloud so they need constant connection and high-performance connection. This is incredibly difficult to identify if you have a business area and you have Company A; where is the headquarters of this company? Is it only a subsidiary? Is it an outpost with some decision-makers? Which functions are present on site? Is it only a warehouse site where you probably don't have much connectivity needs or where you have a central warehouse which is highly connected?

{audio:0:17:16} This is very, very difficult. We tried to go to the local level in sending sales reps, going from house to house and knocking on every door and asking; these Ranger kind of sales campaigns. It’s very costly, very ineffective and not very successful. We tried it with partners including Ranger who are very experienced in this door-to-door marketing; they were also not successful. We tried it with online campaigns.

{audio:0:17:57} You have a high number of people who are interested, however those who are able to make the decisions are limited. Sometimes they just sign their name and later you find that they’re not authorized. The sales reps just try to get their signature and later it's going to be cancelled. Another point of complexity is, after doing the initial pre-sales or the sales itself, it's actually making the connection because a very high number of these companies do not own the properties; they're renting it. Even if they have high demand and they immediately would like to sign, you need to identify the owner of the property and then to get their permission to enter it.

{audio:0:18:54} How has this changed with Covid or is data being transferred and some areas are getting to tech limits? Have you heard about any changes?

{audio:0:19:15} Yes, certainly. Especially Mittelstand was very hesitant to use cloud services for many, many years, but this has changed over the last three to five years. Even small and medium enterprises are using cloud services now. All of us experienced Zoom and virtual conferences have been pretty common, even in smaller companies, so most of them need to rely on a stable and high bandwidth connection.

{audio:0:19:53} There are still the operational issues I just mentioned, in terms of identifying the right decision‑maker, identifying the local needs for the specific site and then identifying the owner of a property and getting permission to enter. I had numerous anecdotes where people were crying out for fiber connection, but for many operational reasons it was not possible. The reasons could be that particularly in this area just six months back, there was both construction by the local city government and they would not allow you to do more digging work.

{audio:0:20:44} Another would be that an office or small companies located in the backyard area, Hinterhof area, and the owner just won’t allow us to open the ground to go to the backyard. There are all of these kind of nitty-gritty operational issues.

{audio:0:21:11} Has this changed a bit because I think, for business fiber, you are renting a building and you need fiber. It’s like you need an electric charger for your electric vehicle and there should be some policy that you can demand this and that a landlord has to build out something like this. Is there anything like that?

{audio:0:21:40} No, I would not say that. I think that this belongs probably to private house landlords, especially business landlords in larger cities. They’re just seeing that the rents are rising. They see the economy has been booming; even in Corona times, people have no problems renting their properties, so there's no pressure on the real estate companies or on private house owners to invest because. I don't see this has changed significantly.

{audio:0:22:26} It’s nitty gritty things but, in total, there are a hundred small hurdles that make it harder for the broader establishment.

{audio:0:22:36} Yes. I think the demand has increased year-to-year in the last 10 years. It’s getting higher and higher and it'll continue to get higher but the operational problems have not been solved.

{audio:0:22:49} Are there any signs of these being solved right now and that, in the future, the hurdles are getting lower?

{audio:0:23:01} I don't see that. There could be and I'm very interested to see what the new German government is thinking about digitalization, especially fiber connection. There could be large subsidies to really increase the fiber penetration. Secondly, there could be depreciation regimes to foster investment also for private real estate or property owners. But unless this changes, I don't see the trend changing.

{audio:0:23:38} One of the biggest things also is construction regulation. Construction, in many cases, becomes very expensive because you have to follow the local city government roads. There are new technologies which could enable you to do construction much, much cheaper and more efficiently but in many cases the local governments don't want that because it makes the streets ugly if you do micro-trenching or large trenching.

{audio:0:24:14} The very rural areas, they have seen that the pressure and they have changed and that's the reason why Deutsche are so successful. They realigned and identified the areas in need and then they are building to accept other technologies or ways to proceed. But I think especially when it comes to the cities, all these issues remain.

{audio:0:24:43} If you look at different companies in the space, how would you rank them according to their network place? Do you have a broad view from a couple of hundred miles higher?

{audio:0:25:03} I think the problem is that it's highly fragmented in the German market. You have, of course, Deutsche Telekom with the densest network and that's their biggest strength, but also the biggest threat is that they need to open their network due to regulation. Vodafone and Versatel are the ones following. They have very big networks but with very specific issues. Vodafone need to mainly rely on the former Kabel Deutschland network which is very private households centered, very suburbs centered, very dense; but not where the businesses are, not in the cities, not in the very rural areas.

{audio:0:26:04} The overall length in a network does not give you a sufficient indication of the strength of the network. It's the density and how it's meshed which is the strength of the network.  Versatel itself, they have a pretty good meshed network in those cities they own, however the weakness with Versatel’s network is that only part of the 50,000K fiber network is owned by Versatel themselves. Many of them are IIUs. They acquired rights by former acquisitions with 15, 20, 30-year contracts.

{audio:0:27:00} Some of them will expire pretty soon in the next couple of years and I know that they have been working over the last five years, city by city, to renew all these contracts and some prices have gone up significantly. So for most of the networks, they are not owned by Versatel but they have exclusive or non-exclusive rights. It makes it very complex for Versatel’s operations to really build up a corporate network for customer because you have your own net and then then you have external network capacities you can rent and you can also rent Deutsche Telekom. Usually, it’s a mix of several networks you use to really design and build and operate a corporate network for a client.

{audio:0:28:08} What share of the network is owned and what is rented? Is there any number?

{audio:0:28:14} I don't know the latest numbers because some of the biggest networks had to be renewed in the last two or three years and I don't know the exact results, but it used to be a 20:80 ratio five years ago; 20% really built and owned metrics. But even then, it's more complex than that. In some cases, you own the duct. In some places you do not own the duct but only the fiber, the routes, the cables, but sometimes you own the duct but not the cables. Sometimes you own only certain fiber lines but not the cable.

{audio:0:28:53} So it's a several layer business and only if you own the duct, the cables and the fiber lines then you're fully in control of what happens there. Otherwise, you also always have to face the risk that the contract expires and you’re out or that the owner can rent it to one of your competitors. If you do not own the duct then whoever it is, they can also rent it to Vodafone or to any other local player. You risk losing your competitive advantage if you do not fully own the infrastructure and this is a problem with the Versatel network. Due to historical reasons, in many cases, they only own part of it and the rest is either leased, rented or on IIUs.

{audio:0:29:50} Regarding the network that’s basically owned, can you put a value on this? What would it take if you would try to rebuild such a network in today’s cost?

{audio:0:30:12} The best guess rule of thumb approach I would take is, if you build a meter of fiber line, it usually costs you between €50 and €100. So if Versatel owns 10,000 out of the 50,000 kilometers they claim to possess, then 10,000 kilometers x 100 would be a €1 billion, very roughly. This is only the part of the network they fully own. The rest, of course, has economic value and you have an IIU; it's like you almost own it at least for 20 or 30 years, so it's very difficult to assess. Certainly, it’s in the billions.

{audio:0:31:06} Obviously, the contracts have value as you have customers and so on, you have a platform as well, right?

{audio:0:31:17} Other than the network, what is the competitive advantage of a Versatel in terms of how you innovate in this industry? Do you own software to deploy capacities or algorithms to distribute traffic and so on? How do I need to think about it?

{audio:0:31:47} That's a very tough question especially for infrastructure players. The key question is, where do you position yourself in the whole value chain? There are companies who deliberately place themselves only on a pure infrastructure layer, so they just rent ducts, they just rent dark fiber, unlit fiber connections. The whole value chain starts from infrastructure owning a duct, being able to place the fibers but then you need to manage them with active infrastructure. You need to manage and control the active infrastructure.

{audio:0:32:40} What you mentioned is the service layer which is the classical telco above the infrastructure layers and there, all infrastructure players really struggle in finding their place and you've probably well aware that all these OTTs are generating huge amounts of profits. Even Deutsche Telekom tried to enter many times but it's very difficult for infrastructure focused players to enter other service areas.

{audio:0:33:17} So the value chain ends when the fiber is let for Versatel? Is that a correct assumption? Another question would be of what are 1,000 people roughly doing? How are they split into different segments?

{audio:0:33:38} If you consequently focused on infrastructure provisioning then it would end there. However Versatel, as well as other fixed net players like Vodafone and Deutsche Telekom with their fixed net business, they are what you call an integrated telco; they own both infrastructure but also services. The services they offer are classical telco services so it's internet and voice. Voice is almost dead so it’s only internet services.

{audio:0:34:12} Next to Vodafone, Versatel is the only one who managed to be a service provider targeted by business customers. What Versatel offers is especially VPN, MPLS VPN networks; secure networks with very individual service levels with asset bases you can define which are very targeted on the customers. Versatel tried to enter other areas of business which either died or are non-existent anymore or they were not successful, like voice routing. Voice routing was a very profitable business but it’s gone now, as well as call center services which are now very difficult.

{audio:0:35:11} Neither Versatel, Vodafone, Deutsche Telekom or any other player in the market really were able to enter this service, to leave the traditional technical view in the IT space. So the ITC merged and became an integrated space. It became a system house, managing data centers which is a different infrastructure plane. Versatel is not there. There were thoughts to start offering data center services but they don’t have them.

{audio:0:35:51} My understanding with Versatel is, once you sign a business, they can cross services from IONOS. Is this a big issue or a big unit economics driver for them?

{audio:0:36:08} I would say not so much for Versatel to IONOS and UI Group service to their customers, but the other way round makes more sense because IONOS can offer their customers the connection – the connectivity together with their services offering – and that the UI Group itself, right after the acquisition in the first two or three years, they focused lots of resources in migrating the whole DSL customer base from former mainly Vodafone, Telekom, Telefónica rented lines to their own infrastructure which was a huge jump in profitability for the UI Group, but less so for Versatel as a separate entity.

{audio:0:37:05} And if you look at VPN carrier sharing for the fiber on top of the regular monthly costs for the fiber business pay, how is it roughly split in terms of the revenues? Can you give an indication? Is it a very important part, the VPN and the larger business networks will connect multiple buildings and so on?

{audio:0:37:35} Usually for VPN projects, you do not sell VPN alone. It's not a standalone product. You sell it together with connectivity so the customer will enquire about maybe eight locations; two data centers, two production sites, three offices and then they have a consulting service where they do network consulting. In identifying all the locations, what is the most economical way to really connect a specific site.

{audio:0:38:08} Doing a concept, a network concept, what are the customer requirements with regards to SLA with technical standards? Then it's a tender process with several items and usually there's not VPN standalone, but as an integrated concept. VPN itself is not a big revenue driver but with VPN on top, you can add many other services like MPLS which is a more secure network. You can do other security services, higher service level agreements, so it's always a mix.

{audio:0:38:55} But core connectivity, is this the largest part of the revenue?

{audio:0:39:01} Yes, I would say so. As I just explained, it's a lot less easy to really separate the revenues in many cases because Versatel hadn’t really changed until two years ago. Most of these consulting and these complex projects are calculated in Excel and it's very difficult to really extract the revenue streams but also to get a whole picture of a client. Many were largely unsure how profitable each client is and even whether some clients are profitable at all. It’s a very big challenge because it's a complex calculation. You have a high capex need where you need to build out your own network to the client, to a specific location. You need to estimate; sometimes it's maybe 20K, 35K, 50K, but it can double because you did not foresee any risks during construction.

{audio:0:40:13} At the same time, you can rent at Deutsche Telekom at market prices which are regulated, but all others are based on frame contracts and it's an estimate how to really connect each and every site and location and large connectivity projects.

{audio:0:40:34} And maybe if you pass other businesses along the way there’s upside there as well so it’s getting harder to calculate a single number. As we identified, this is hard. How is this managed? Does the organization think in customer acquisition costs and payback on a project basis and estimate and then it goes and you have to fulfil the contract no matter what and, in the end, you don’t look at the profitability? How does that work?

{audio:0:41:18} Say it has pretty strict requirements they need to meet in terms of profitability. They have gross margin but also that's what we, at the time, called cash gross margin, so gross margin with a cash component, CGM. I think salespeople are allowed to sell up to 40% cash gross margin. Everything which goes below that would need approval by the next level or, if it's below 30%, then the board. There's a deal board for larger deals which are above a certain limit or which do not meet profitability.

{audio:0:42:02} On the calculation basis, this is pretty well managed. Additionally, provision commissions for the salespeople are directly bound to profitability of the projects but reality shows that there's also future resource shortages no after-calculations. This was calculated and mapped reality.

{audio:0:42:33} The salespeople are compensated on the initial program?

{audio:0:42:40} Salespeople are based upon basically mainly two components; one is revenue. This is because most contracts are long-term revenues, especially in the business area.

{audio:0:42:53} How long are the contacts?

{audio:0:42:57} Rarely are they one or two year contracts. Most are three or five or 10 years. This is the standard. The bigger the project is and of course the bigger the capex requirement is, the longer the contract period would pertain, but three to five for medium-sized companies and projects and if you go to Daimler and large-scale projects, usually it's 10 years or even longer.

{audio:0:43:30} What is the goal? Is it to sign the payback period and secure it so you get your money back, or is it price so you get a small return on top? What is the goal there in terms of the company where a project costs me 100 and then I get 10 cash gross margin per year? Then do I need to contract it for 10 years or do I have something at the end left out that’s basically not secured so the client might drop off before I get my 100% cash payback?

{audio:0:44:17} I was not directly involved in corporate planning but corporate planning was rather conservative. They always assumed that the minimal contract period was all which would be realized. Of course, many contracts are renewed and we have many customers who are customers for much more than the initial contract period. However, that usually happens with a renegotiation, so these contracts are negotiated and nobody knows what will happen in 10 years with prices and infrastructure. The telco industry is used to renewed contracts getting, in some cases, massive discounts.

{audio:0:45:10} Does it depend on the build costs? If you are the only person and adjusting for inflation, it shouldn’t be cheaper at all because the company has very little alternatives?

{audio:0:45:26} Yes and no because you have the technological advancement, especially active components, routers, nodes and switches. Of course, they become much, much cheaper year by year or even maybe if they don’t become cheaper than then they will increase capacity, so we get a much, much better one. This is one of the components and the second is the customers know pretty well that we have invested capex and after you have earned your capex then the customers do know that you do not have to invest anymore, so they will negotiate with you.

{audio:0:46:23} What is the return on capital that’s basically targeted on projects? Is there a general number in terms of the capex outlay?

{audio:0:46:37} I don't have a specific return on capital employed. I'm not sure about that.

{audio:0:46:46} Can we go back to the 1,000 people in terms of what segments or teams are working in the organization and what is the focus of the people? Maybe you can elaborate in terms of a split?

{audio:0:47:17} I don't have the headcount exactly but, very roughly speaking, I think half of the 1,000 would be in operations. Depending on whether you count CRM in operations or not then probably yes. If you do not count them to operations then it's maybe half.

{audio:0:47:42} Within operations, it has to be reorganized every other year, but the traditional plan-run-build departments or including the consultants who do customer projects but also the network planners who need to upgrade all routers and switches every other year and need to predict traffic and bandwidth requirements and build new networks, plan-run-build. Run is more data center, like operation centers. You need to oversee all active components, whether they're working and have an immediate reaction if there's a failure.

{audio:0:48:27} Maybe a digger just disconnects a cable and then there can be major outages which can be a disaster; that can be a big problem in some construction sites. These are the core of the company running the networks; I would say it's maybe. The other half is mainly sales driven. I don’t have the latest numbers but I would say close to 100 direct sales reps; maybe it's 80 or 90.

{audio:0:49:10} You have a large indirect partner network which is managed by a department; I think it was 150 indirect sales partners. Then, of course, we have inside sales and I think maybe 100 people in finance and controlling. CRM especially for business customers is very important. We have certain levels that when there’s an outage of a connection and the business stands still, you need to directly react. I don't know the number of people but that's the rough overview I can give.

{audio:0:50:09} You mentioned that DSL was also a big part of the network back then. Is it still a significant part of the network and connections and revenue?

{audio:0:50:27} That's a good question because one-on-one customers have been migrated to the network and there were talks about selling the whole network or shutting down. Again, I'm not sure about the latest status there, but in the end all revenues with DSL customers do not belong to Versatel. In 2015, 2016 there were maybe 300,000 remaining Versatel DSL customers. They were close to a million at the peak; there were maybe 300,000, 400,000 which migrated to 1&1 and then migrated on the Versatel infrastructure platform, but the revenues of DSL customers go to 1&1.

{audio:0:51:29} Versatel gets a fee for providing infrastructure services?

{audio:0:51:33} Yes, and this is not a large share of the overall revenues.

{audio:0:51:46} We also talked a bit about culture, maybe the current management. Have they shifted towards a more entrepreneurial culture from the 2016 days when you left? It seems like the culture where everything was superseded on the very top was just too slow for business sectors. Have you seen any changes here?

{audio:0:52:18} Frankly speaking, 'm not sure about the last 12 to 24 months but even until 2019 after I left in 2016, even in the years after, every year I think half of management board was exchanged and there was a big fluctuation and some of the remaining people I knew also decided to leave. There's a few tough guys still there which I know, but I think the culture was not significantly changed, at least until 2019.

{audio:0:52:56} What are the biggest strengths of Versatel and the company where you see them basically competing well with the competition going forward?

{audio:0:53:09} Versatel’s strength in the business market was maybe threefold. The first was having these cities which Versatel has on net. In most cases, they have a very dense and meshed network, so very strong, very close to the customer and good network coverage. The second was that being a medium sized company with 1,000 people, for many customers – business customers, not Daimler class, but medium sized companies with which have 3,000 to 5,000 employees – they were on eye-level; they felt emotionally on eye level from Mittelstand to Mittelstand and many of them were disappointed by Deutsche Telekom being a huge provider.

{audio:0:54:20} For many years, or maybe for many decades, Deutsche Telekom had these exact problems with these large Mittelstand segment because they were shifted back and forth from T‑Systems back to T-Comm to Telekom Deutschland, so they were really suffering for many years and this was exactly the sweet spot for Versatel to address them and to provide good service to them.

{audio:0:54:48} In this respect, Versatel was in many tender processes where a company had to decide on a new provider with a two-carrier strategy. There was a trend to shift from a one carrier strategy to a two-carrier strategy and many wanted Deutsche Telekom because of the excellent and unbeatable network coverage, but a second player added. So in 80% of interesting tender processes, number two and three was Vodafone and Versatel and the image of Versatel was especially good in these segments, so well that in most cases, we beat Vodafone.

{audio:0:55:38} I think those were two when you said three.

{audio:0:55:40} Maybe it was the third, the two-carrier strategy, yes.

{audio:0:55:45} If you would become CEO tomorrow of Versatel, what would you think needed to change?

{audio:0:56:07} If I were to become CEO and owner, without shareholders who have certain strategic thoughts and expectations, I think I would radically cut the small and mass market business. It was the intention of Ralf Dommermuth to standardize the business and address the small customers, giving them a price of €99 for fiber connection for small customers which was just unrealistic and never worked until today.

{audio:0:57:09} I think the strength, as I just mentioned, is to provide a good service in complex environments to large and medium-sized players and if you manage operations and sales effectively there, then you can have a nice profitable business. However, the mass market and stand-up business always conflicts in expectations of the companies. Small companies do not want to invest capex. They do not want to pay high monthly fees. Many of them are satisfied with DSL or vector DSL or SVDSL or maybe even with a cable connection which can get several hundred megs.

{audio:0:58:00} However, a true business company, who have true business requirements, need a stable connection and a high upstream upload connection where you need to fulfill several technical requirements for efficient data center connection. If you have your own data centers then the game changes completely. For small companies, they have a cloud service everywhere; they just need a connection. They do not meet standards. It's a completely different play and to mingle these totally different segments and say they are all business customers; I think that's a mistake.

{audio:0:58:46} Regarding the maintenance capex, what do you think is a good assumption on maintenance capex to keep up with the increased bandwidth, to basically replace the active components of the network every five, seven years? What is a good level of revenue or a good absolute number for the network?

{audio:0:59:22} In overall numbers, I'm not sure to be honest. If you think it through a little bit for the pure passive network, so the fiber network, you do not need any maintenance at all. It's the active components and it very much depends on which clients do you have, which benefit requirements do you sell and if you find a way to get it compensated in the customer contracts in the bandwidth then this could be an option.

{audio:1:00:00} It’s difficult but I’m not sure on the latest predictions on the years to come for bandwidth increase. I believe it will explode as it has exploded and quadrupled; I believe it will continue. That's a difficult question.

{audio:1:00:20} If you look at today, it’s loss-making because of the large DNA, but as you also say a lot of the riders are more aggressive than the real utilization. The fiber is basically not done after 10 or 15 years whenever they write it off.

{audio:1:00:49} I think that they’re cashflow positive. They are cashflow positive for the last 10 years and I think the rest is maybe accounting and corporate finance stuff within the group. I know that the management of Versatel was unhappy about the business plans they had to fulfill and the expectations from Montabaur and, at the same time, they got reimbursed for the DSL customers which migrated. I think that is also some corporate finance adjustments, so I'm not sure that the real P&L is completely feasible standalone.

{audio:1:01:33} Do you have any other topics or last things to add in our discussion that we haven’t talked about? What do you look at in the upcoming years?

{audio:1:01:47} Maybe coming back to what I said in the introduction, it used to be a company with huge entrepreneurial spirit and it grew very successfully and I think this is what the company needs, with a focus in the business. It has big assets which just need to be utilized better in a group. I think that the UI Group is impressive, with an impressive history but it does not really fit. It is a mass market, low infrastructure group and just wants to have a project business, no mass market and pure infrastructure related and this was difficult.

United Internet & The German Fiber Market

Former Director at 1&1 Versatel

inpractise.com/articles/united-internet-versatel-and-the-german-fiber-market

United Internet & The German Fiber Market(November 29, 2021)

Former Director at 1&1 Versatel

Interview Transcript

Former Director at 1&1 Versatel

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