The chances were never high of the German ISDP Hansenet being sold uneventfully, after its owner Telecom Italia placed it up for sale at the beginning of this month with a price tag in the region of €1.1 billion.
For a start if Telefonica bids for the service, which has 2.3 million DSL broadband customers throughout Germany, it could be accused of buying it from itself, and that would sure to lead to some kind of European Commission involvement.
Telefonica and Telecom Italia have already been accused of tying up the Argentina telecoms market by its anti-trust authority because Telecom Italia owns one incumbent and Telefonica the other (Faultline last week), so there are sure to be some form of allegations if Telefonica wins the Hansenet deal.
In May 2007 Telefonica gained significant influence in Telecom Italia, while giving the illusion that it remained in national hands, when Pirelli and the Benetton family agreed to sell their 18% controlling stake to a consortium including Telef’nica and Italian banks Intesa Sanpaolo and MedioBanca. All this voting power now sits in Telco SpA of which Telefonica owns 42.3%, which in turn holds 23.6% of Telecom Italia voting shares, which have given it two board members.
Telefonica has now merged its bid for Hansenet with existing German ISP United Internet, while previously both had separate bids and were up against Vodafone. These are only first round bids, but given Vodafone’s weak bidding performance in its home market recently, to win the hand of Tiscali, which has a similar number of broadband likes in the UK for sale, it is unlikely that a Vodafone bid will be adventurous enough to win the day against these two enemies combined. A legal challenge may do a better job.
At stake is a basis for a triple or quad play within Germany, where Vodafone already operates such a deal, by combining its Mannesmann assets acquired in its heyday. Vodafone recently launched a quad play through its Arcor ISP subsidiary there in January 2008. A deal to buy out Hansenet, which has already offered IPTV services, would double the size of internet customers for Arcor and it is expected to make an offer any day now.
It seems laughable that Tiscali in the UK and Italy cannot attract bids of the same magnitude, despite having similar revenues and customer numbers, mostly because of its lowly share price on the Italian stock market. Tiscali and Hansenet are among the largest ISP properties left in Europe which are not in the hands of one of the telecommunications majors (if we no longer count Telecom Italia as such a major).
Arcor is 75% owned by Vodafone and its IPTV launch last year was always expected fire up a German quad play landgrab and push the global cellco rapidly into fixed line services. The Arcor IPTV service was built around Alcatel-Lucent hardware and software using NDS conditional access, Harmonic encoders and Pirelli set tops.
Rival Deutsche Telekom also has IPTV services through Alcatel equipment and Microsoft Mediaroom, gradually being rolled out across 50 cities with ADSL2+ and VDSL2, though that progress may slow down further after Deutsche Telekom’s poor financial performance this week.
Vodafone’s Arcor has been in a price war with the Hansenet IPTV offering so that they could both grab market share before the Deutsche Telekom offering is widely available, while Telefonica has been trying to build up its fixed line infrastructure in Germany from scratch and we always said that Telefonica would target Hansenet if and when it came on the market.
Vodafone has already acquired ISPs in Italy and Spain, two of its big four European markets, has Arcor in Germany and only has wholesale deals with BT in the UK, its native country, where its fixed line presence is weakest.
Deutsche Telekom itself has sold many of its European ISP businesses outside of Germany, and a clear battle for European Quad play leadership is forming between Telefonica and Vodafone, with Vodafone hampered by its annoying shareholders that would prefer it to cut costs and do no acquisitions.
It is possible that Vodafone and others could engage with Private Equity firms, suddenly becoming bolder as the frigid economic climate warms, and use them to help fund a joint acquisition and then safely slowly swallow the Hansenet assets over a period of years. We would expect a clear winner by the end of May, but for the negotiations to go exclusive with one party anytime soon.