Telefonica, S.A.’s TEF subsidiary, Telefonica Colombia, recently announced its decision to sell off a controlling share in its optic fiber network unit to global investment entity — KKR. The firms have collaborated to spin off this unit for the creation of an autonomous nationwide open access wholesale fiber-to-the-home (FTTH) network.

The new company will be responsible for the deployment of fiber optic network in nearly 90 cities in Colombia while expanding its coverage across 4.3 million homes by 2024. The network gamut, which includes more than half of underserved areas outside high-income urban areas, will be significantly benefited by this rollout, thanks to the avant-garde technology that facilitates best-in-class FTTH services in Latin America.

This, in turn, will ensure profitable growth for Telefonica and boost the adoption of fiber optic with enhanced subscriber experience, thereby leading to rapid digitization in the South American country. With more than 380,000 customers harnessing Telefonica Colombia’s fiber service, the operator will contribute its current FTTH infrastructure, which covered 1.2 million households across 50 cities at the end of first quarter of 2021.

Per the terms of the agreement, Telefonica Colombia will be entitled to 40% stake in the new company with KKR holding 60%. The transaction is valued at a whopping $500 million. Out of this amount, the Telefonica arm will get a payment of $200 million with an eligibility of receiving further performance-based consideration of up to $100 million.

Apart from augmenting broadband access, the deal will enhance the value of KKR’s shared digital connectivity assets. It will also complement Telefonica’s undeterred fiber deployment efforts on the back of resilient business models that will raise the return on invested capital.

The sale of the fiber optic network in Colombia is part of Telefonica’s ongoing strategy of deleveraging its balance sheet by selling off its infrastructure assets. The latest move acts as a major driving force for Telefonica to improve its liquidity position especially after it divested Telxius’ mobile phone masts in Europe and Latin America to U.S.-based telecom infrastructure operator, American Tower Corporation AMT, a few months ago.

The spin-off will enable Telefonica to trim its debt by €200 million. Hence, the Spain-based telco giant is seeking assistance from investors to revive its business units in the pandemic-stricken market. With operations across 17 countries, the company is capitalizing on the opportunities in the digital world through several growth strategies to enhance long-term prospects, while experiencing healthy momentum in the smartphone market.

Shares of the Zacks Rank #3 (Hold) company have returned 5.9% compared with the industry’s growth of 3.3% in the year-to-date period.

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Some better-ranked stocks in the industry are Telefonica Brasil S.A. VIV and TELUS Corporation TU, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Telefonica Brasil has a long-term earnings growth expectation of 14.5%.

TELUS has a long-term earnings growth expectation of 8.2%.

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