The rumored €1 billion which this week emerged as the price for buying out Hansenet in Germany, shows that the race is still on for broadband capacity across Europe, as Telefonica is expected later this week to announce it has closed the deal.
The story has run in both local Spanish newspapers, and also in Reuters, but no-one should have been surprised that it was Telefonica that won the day ‘ after all it has a strong controlling vote at Telecom Italia, the seller, and was rumored as far back as May as being the leading bidder for the asset.
Essentially the price has gone down since May, though that will be on the back of exclusive due diligence, which may have demonstrated how terribly competitive the German broadband market is right now for outsiders.
For years the inefficient and too highly priced services from Deutsche Telekom have been prey to unbundled services from Arcor, Hansenet and others, until a new CEO has changed the business. Essentially two things have changed in Germany, the new CEO Ren’ Obermann has realized that DT was charging way too much for broadband and IPTV services if it wanted to grow its market share, and senior management has seen pressure from the European Commission to see broadband services properly unbundled. In the past DT has dragged its heels when consumers wanted unbundled broadband which has prevented consumers deserting in bulk. With that process gradually coming into line with European regulations, it has meant that DT has had to reach for lower prices, and the result has been a far tougher German market.
The moves have frozen Vodafone’s Arcor IPTV services in their tracks, after initially launching way underneath the DT price point. Cuts from DT have meant that Arcor is completely rethinking its approach to IPTV in Germany and has withdrawn its offering.
Much the same must have been going on at Hansenet, on the block for at least six months, with lower DT broadband prices and cheap triple play bundles, cutting into the broadband numbers and deal value. Even so at the lower end of the estimates at €900,000 ($1.3 billion) that still means that each of the 2.3 million broadband subscribers are being valued at over $570. In the most recent broadband acquisition deal in the UK at Tiscali, Carphone Warehouse only paid some $200 per broadband subscriber, and that included a fully fledged IPTV offering.
That deal showed that Vodafone, Deutsche Telekom itself, BT, BSkyB and Orange were all halfhearted in the chill of the financial uncertainty that surrounded the early part of the year and are still not aggressively pursuing broadband capacity in Europe. Sky even had exclusive negotiations with Tiscali at around $400 per head (a total of $360 million), and yet pulled out at the last minute. Partly this was because Tiscali had genuine debt issues and a crashed share price on the Italian stock market.
Even so the deal to buy Hansenet from troubled Telecom Italia is still at about a 50% discount to broadband deals that were being closed over the past three years, as all of Europe’s major players have chased fixed line broadband capacity, especially those with cellular only assets like Vodafone.
When Vodafone bought Tele2 Italy and Tele2 Spain it paid around $1,708 per broadband subscriber, but the price included 2.2 million dial up customers in Italy and 310,00 in Spain. And when Neuf Cegetel bought Deutsche Telekom’s French Club Internet unit and AOL France in 2006 each broadband customer was worth over $800. Orange picked up the Deutsche Telekom owned ISP in Spain for around $1,000 per broadband customer in June 2007.
Telecom Italia still has broadband assets outside of Italy, in Dutch provider BBned, but this is only likely to fetch another €100 million.
Hansenet offers IPTV under the Alice brand and has a €30 ($44) triple play offering, which includes a 70 channel IPTV service, but still has been unable to maker sales in the short term.