Rumors, which have since been denied, have been flying around this week that Vodafone was about to pounce on leading German cable operator Kabel Deutschland.
We’re weren’t sure whether to even report on this one, because the idea that Vodafone would buy a cable operator struck us as plain dumb. The only reason we feel we should cover it is because companies sometimes do dumb things. And just how dumb is it anyway?
Vodafone acquired Arcor years ago when it bought Mannesmann and established itself in Germany. Arcor is an ISP using unbundled DSL telco lines. So technologically speaking, there is no match between existing Vodafone Germany efforts, which are based on IPTV technologies, and cable. But on the other hand there are many cable operators around the world that are entirely IP enabling their connections and offer IPTV over cable, and besides the two technologies could be kept entirely separate. Perhaps the only rationale for buying Kabel Deutschland is that it and Vodafone have a common rival in Deutsche Telekom, and that KD has around 9 million cable subscribers, almost all of which are analog with just over 800,000 digital TV subscribers.
That overnight would make Vodafone Germany the largest pay TV operator in Germany, and because KD is currently loss making, the price would not perhaps be quite so high. But it would still represent a strategy of a major purchase in a saturated market, something that Vodafone shareholders have been trying to get the company to resist, and in the last few years Vodafone has embarked on acquisitions in countries far from saturation, so that it can maintain customer and revenue growth.
On the other hand, it might be that the limited experience that Vodafone has had with its new quadruple play at the Arcor subsidiary, is proving that the Quad play offering is irresistible. In that case it could conceivably become a reasonable activity to acquire a cable operator and integrate it with its cellular operation.
The truth is that half of the cable operators across Europe have a vital need to establish themselves in a cellular operation. Most of the large ones, including UPC, Numericable and Virgin have either started a quad play (Virgin) or come out and said that mobile is essential.
So what has been taken for acquisition talks, may well be partnership talks. In a tightening credit market and recession, it could be that Vodafone has sensed that it makes more sense to partner across Europe with cable operators, either offering them an MVNO or some relationship even tighter, perhaps similar to the way Sprint tried to, and Clearwire continues to, work with the US cable operators. This logic is only undermined by the fact that most of KD is analog.
Vodafone has denied the reports of acquisition but it could be that no-one has asked Vodafone the more far reaching question of how it feels about working with cable and other ISP operators in Germany, Spain, France and Italy (in the UK it would have to wrest the Virgin MNO from T-Mobile) . Perhaps that might have yielded a more sensible answer.
Providence Equity Partners is the current owner of Kabel Deutschland and it has publicly stated that it would be interested in selling the company on the right terms. But that it because it has been holding the asset since 2004 or so, when it acquired the business with the intent of merging it with the three other cable operations that used to be owned by Deutsche Telekom, a move that has been consistently blocked by German regulators.
The initial report that Vodafone Germany was interested ran in German newspaper Handelsblatt and was repeated in UK newspapers.
Kabel’s figures were also just out, perhaps therefore a time for rumor and speculation, taking internet customers to 547,000 and telephony customers to 530,000 with total revenue generating units (customers contracts) of 11.2 million up almost 1 million over the year, mostly through acquisition. Digital pay-TV customers went up by 91,900 to 823,000, a rise of 12.6% and ARPU rose to €10.92, which is still very low.