Covage wins Seine-et-Marne FTTH deal

Covage, the French company of Axia NetMedia Corp. (TSX: AXX), has been selected as a major partner in a fiber-to-the-home (FTTH) network in Seine-et-Marne, France. The fiber-optic network will pass 319,000 homes when completed.

Located east of Paris in the region of Île-de-France, the department of Seine-et-Marne has a population of 1.3 million. Covage owns and operates the Sem@for77 regional network in Seine-et-Marne. The new project, conducted in partnership with the local government, will see the expansion of this network as well as a creation of additional open-access FTTH infrastructure.

The deal with local officials has two parts. The 25-year Délégation de Service Public (DSP) contract calls for Covage to build, own, and operate a network that will pass 169,000 homes. Covage will pay for a portion of the roll out. Separately, the Operating Contract will see Covage offering services to another 150,000 homes over a network it will maintain for the government. The government will fund construction of this infrastructure and retain ownership once the roll out is completed. Covage will pay a licensing fee for use of the network.

Meanwhile, Sem@for77 will have exclusive rights to provide active fiber services to the 1,733 enterprise sites that the new FTTH network will pass. The deployment will increase Sem@for77's addressable market by over 15%.

The resulting 6,200-km network will combine new fiber-optic infrastructure, rental of existing ducts and related infrastructure, and the lease of existing fiber from Sem@for77. The aggregate investment over the 25-year contract term is estimated to exceed €350.0 million. The funds will cover construction of the transport and distribution network segments, interconnection with Covage's national backbone, and the cost to connect subscribers to the network.

Network construction is expected to begin later this year. By 2025 Covage expects to pass approximately 90% of DSP homes, and the community plans to pass approximately 70% of Operating Contract homes.

The Covage part of the network funding will come from a combination of private capital, operating cash flow, and government grants. Axia, as a 50% shareholder of Covage, expects its maximum capital contribution of €17.0 million to be made over the next five years. However, with Covage in active talks with potential lenders, Axia may not have to shell out quite so much. Axia expects its 2015 capital contribution will be €5.0 million.

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