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Brazil’s Alloha Fibra to invest over US$150mn in 2023

Bnamericas Published: Friday, November 18, 2022
Brazil’s Alloha Fibra to invest over US$150mn in 2023

Alloha Fibra, the holding of internet service providers (ISPs) controlled by Brazilian investment fund EB Capital, will invest over 800mn reais (US$150mn) next year.

The amount is in line with the investment projection for 2022, company executives told reporters on Friday.

The investments will go to networks, fiber deployment and construction, and does not include potential acquisitions.

“The capex of the past year was very focused on integrating and adapting the network of the companies that we had acquired. Part of those costs ended up coming this year too,” Felipe Matsunaga, Alloha Fibra’s CFO and a EB Capital partner, said in reply to a question from BNamericas.

“For 2023, we project something around 800mn reais in organic capex, maybe a little more than that," he said.

In January-September, EB Capital invested 600mn reais in Alloha, in networks and organic expansion. According to Matsunaga, total cash capex, which includes acquisitions, is over 1bn reais year-to-date.

Following a series of acquisitions in 2020 and especially in 2021, Alloha decided to hit the brakes this year. Its last acquisition, of Sâo Paulo state-based ISP Niu Fibra, took place over a year ago, in November.

Amid an adverse macroeconomic environment and higher operational and financial costs, the focus of the company, the country’s third largest fiber broadband group in terms of customers, shifted to the integration of ISPs already acquired, the unification and modernization of networks and systems, and customer acquisition.

Alloha had 7.6mn homes passed with fiber at the end of September, of which 1.3mn are clients (up 46% year-on-year). This gives it an untapped base of 6.3mn that could become clients - the so-called take-up rate.

Third quarter revenues reached 358mn reais, up 6% quarter-on-quarter. It did not provide a year-ago comparison for revenues. The company said it is currently selling 50,000 fiber plans per month. 

More than new homes passed, it is the acquisition of customers that Alloha is now focused on, to increase the take-up rate in order to boost cash flow and revenues, said CEO Alexandre Mosche.

After the pause this year, the M&A-driven strategy is expected to return in 2023, but in a more cautious way.

“We decided this year to focus 100% of our business on organic growth. If we continued with the pace of M&As as we were, it would take our focus away from what we had to do," said Mosche. 

"Now we should resume acquisitions, but small ones that really make sense for the business in terms of network complementarity.” 

COVERAGE 

Alloha is present in 20 states and operates a 114,000km backbone, with fiber backhaul in 650 municipalities and fiber-to-the-home (FTTH) in 270 cities.

In addition, the company has 1,400 points-of-presence (PoPs, interconnection points and network traffic exchange) spread across the country.

According to Mosche, Alloha is the market leader in 107 municipalities in eight states.

The 2023 focus also includes increasing wholesale and B2B sales to city halls, companies, operators and regional ISPs - as a way to better balance revenues amid a slowdown in sales to residential customers. 

The revenue mix is currently 80% B2C and 20% B2B, and Mosche sees B2B growth potential, especially in cities where the company already has backhaul. 

Around 900 ISPs, which together have around 4mn customers, make use of Alloha's network to complement their own operations, he said. 

Alloha will also up its bet on services associated with broadband, such as content streaming, and fixed telephony over IP, according to Viviane Soares, head of value creation. 

Around 70% of the company's revenues still come from the “pure” fixed broadband business.

“We are working hard with value added services. Fast, but without skipping stages. We are looking at news, sports and music, among other products, for 2023,” said Soares.

Next year, the company expects to advance with the integration of all the management and operation systems of the ISPs it controls, particularly on the CRM front. 

In 2022, Alloha finalized the unification of financial and net promoting score (NPS) systems, said Mosche, while also deploying a supply chain management platform for large procurements, such as fiber optics.

AMAZON FIBER

Through ISP Mobwire, Alloha expressed interest in being part of the consortium of carriers that will use and operate the second stretch of the underwater Amazon fiber backbone project (Norte Conectado).

Dubbed Infovia 01, the federal government will launched it in March, and the qualification process for interested operators and providers was opened in September. 

Mobwire is part of the consortium that operates the first stretch, called Infovia 00. This consortium is formed by Aquamar, BRDigital, ClickIP/ICOM Telecom, SEA Telecom, Fortel/Wirelink (Mobwire) and Telefonica.

Sergio Antonio Ribeiro, CEO of Mobwire, told BNamericas that the company expects to soon be confirmed for Infovia 01 as well. 

He said it makes sense to participate in another stretch given that it would be difficult for Alloha's own fixed network to reach the Amazon region.

POTENTIAL SPLIT AND SALE

Regarding reports that EB Capital is considering splitting Alloha into a network and infrastructure unit and a customer and services unit, with the potential sale of the former - Mosche said the plan is still under review.

According to the executive, a split would “make sense” but the decision is up to EB Capital.

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