Liberty Global is arguing in public the same old tired rhetoric about owning more cable in Germany. The implication in speeches given at Anga cable and reported on by various news sources, is that it should be allowed to buy Kabel Deutschland.
There is a game of cat and mouse going on here, reading between the lines. Vodafone is supposed to also have renewed interest in buying Kabel Deutschland in Germany, despite the fact that a few weeks ago it signed a deal to take bitstream broadband from Deutsche Telekom, which means that it now has access to very rapid DSL route to market at 50 Mbps now, rising to 100 Mbps later.
Bitstream broadband is far closer to wholesale than to unbundled loops, and operators are pushing it in Europe in order to get all the benefits of Vectoring. Vectoring relies on cancelling cross talk in a telco wire bundle and if the lines don’t all belong to one telco, the cross talk is harder to cancel and can’t be done as well.
We put the deal between Vodafone and Deutsche Telekom to Christine Mitchell, Head of Video Content, Vodafone Group when we met her a few weeks ago at The Connected TV World Summit in London, and she downplayed it, suggesting it was a good practical measure, but nothing radical or spectacular. She also said that Vodafone had no plans to sell broadband and TV in rigid bundles as they are sold in France, by ISPs, where TV is just an automatic byproduct of buying a broadband package, and claimed that the Vodafone TV offering in Germany was popular, but would not give numbers for its uptake. We think it has a negligible number of users.
We suspect that getting faster lines, which required a lot of work and money by Deutsche Telekom to create, not only improves the quality of Vodafone TV in Germany, but also both parties realize that if you have faster broadband available, it is preferable for someone to take it, even if it means taking a TV service over it that is not yours. Deutsche sees Vodafone as an ally in shipping broadband units, which are highly profitable, and Vodafone sees it as catching up capability with its biggest rival and with all these other cable companies.
So it remains possible for Vodafone to do this, and use those fast VDSL lines for cellular backhaul and for backhauling WiFi Hotspots sites and using them for offload, and potentially also using DT WiFi for cellular backhaul, and yet still want Kabel Deutschland.
So this could all be part of the same strategy. Perhaps Vodafone is perfectly happy buying Kabel Deutschland and running it for the fixed line capability, the better TV programming rights it has, and the even faster installed base of broadband.
So when someone like Mike Fries at Liberty Global stands up and says ‘Something like 40% of our growth comes from this country (Germany),’ at the ANGA conference, then Virgin sees an opportunity for much the same.
We cannot see this being possible without a huge chunk of cash coming Vodafone’s way, and so a deal to buy Kabel Deutschland Group, might be contingent upon it selling its 45% of Verizon Wireless for $100 billion, something we think would make such a move palatable to shareholders.
So what else was Fries saying? Following the acquisition of Virgin Media in the UK, which will be closed this Friday, Liberty Global has ‘plenty of money left for Germany.’ Fries said the Virgin deal was a rational one ‘Today it is very rational to invest in the UK, but ten years ago the situation was different.’ Although the operator is active in 13 countries, most of the income is generated by the networks in five countries, the UK, Germany, Switzerland, Belgium and the Netherlands.
LGI’s German subsidiary UnitymediaKabelBW serves three states and 40% of the total population, and Fries added that acquiring Kabel Deutschland ‘is always interesting to us.’
But we don’t think he means it. We think that as it becomes more and more obvious that Vodafone is the ‘only MVNO game in town’ for Liberty Global to have a major cellular presence across Europe, then it becomes just as obvious that it would be able to ‘guide’ Vodafone in its use of Kabel Deutschland if it was in the hands of a closer partner, almost as much as if it was owned by Fries.
Liberty Global of course has to be careful. If Vodafone has $100 million, it might decide to buy Liberty Global. How would that work if Vodafone had already bought Kabel Deutschland and let’s say that Liberty Global had gone and bought the only other game in town, Telecolumbus, which Kabel Deutschland was recently prevented from buying.
The 8.5 million KDG homes added to the 2.1 million Tele Columbus homes were perhaps a step too far for the financial regulator. But the 6.7 million TV homes of UnityMediaKabel BW, added to Tele Columbus, might make better math.
But if Vodafone then goes and buys Liberty Global that same German regulator might want to entire cable deal in Germany unraveled.
In the past the German regulator stopped the main cable networks in the country from having a single owner. As a result, said Fries, ‘the cable industry is the only industry that doesn’t have a nationwide presence. That doesn’t make a lot of sense to us, that cable has been forced into fragmentation. It doesn’t make sense for consumers, for the content providers. Consumers are the ones that would win if the industry is consolidated.’
He fails to point out that there are over 18million cable homes in Germany out of 35 million TV homes and 24 million pay TV homes. If one company owns all of them it has a monopoly in pay TV. That’s just not true in the UK or Spain where cable is mostly one company. Fries is not an idiot, he knows this.
We don’t think that the Kabel Deutschland deal with Vodafone was ever off. Vodafone needs WiFi for cellular offload and fixed lines for backhaul right the way across Europe. Why would Vodafone not buy British Telecom as well, while it is at it? Cellular operators going forwards cannot afford to be caught with no fixed lines in the ground and those two moves save Vodafone blushes way into the future, while creating acceptable duopolies around the main European countries.