There are a few notes coming out of Morgan Stanley which pushed hard on buying Ziggo stock, on the basis that between them Ziggo and Liberty Global’s UPC in the Netherlands should be able to find ways to cut costs, improving margins, even without Liberty Global continuing to buy more than the 18.2% of Ziggo stock that it says it holds today (we thought it was just 15%).
It seems to base this calculation on integration, and cites figures from the integration that made up Ziggo, when Multikabel, Casema and @Home were all merged. But that’s the critical point, merged. How can Liberty Global and Ziggo merge marketing efforts when they have different content agreements, different broadband pricing and a completely different geographical footprint. It cannot cut HQ staff, because the two are not and cannot be merged, due to anti-trust concerns.
The Morgan Stanley note talks about UPC having about 2.8 million homes on its network and 4.2 million on Ziggo’s but this is in terms of homes passed, and it then goes on to say that the two have between then 40% of the market, and we assume it means that broadband market, since they have considerably more of the pay TV market.
Ziggo has 1.8 million internet subscribers, Liberty Global around 1 million and KPN around 2.7 million, and they are the bulk of the broadband subscribers, with a few fiber operators and a few ISPs including Tele2 which has around 407,000, so perhaps combined the two cable companies do have a 40% broadband market share. But it also suggests that KPN is losing ground, when it has actually grown its absolute numbers every quarter, although perhaps just a little slower than the market’s growth.
We too are fans of the position of both Liberty Global in the Netherlands and elsewhere and Ziggo and feel they may be undervalued, but not because they would somehow do better together. As all cable companies share the same R&D platform CableLabs or the European equivalent, then there would be no merging of the R&D function nor the technical teams, because they use completely different OTT and set top systems. There is however a move to combine the homespots (home WiFi turned into a Hotspot) and use them for WiFi offload as part of perhaps a shared MVNO. But even here there must be concerns that although they might share the technical side of such an equation, the anti-trust authorities might force them to operate an MVNO under the two brands, which could be potentially separated at some future point, given their collective dominance in TV and broadband.
We have already said that we’re pretty sure that the Netherlands competition authority the NMa would not allow Liberty Global and Ziggo to merge, because it would own 63% of pay TV customers for the Netherlands, and something closer to 75% by revenue.
Morgan Stanley has issued a price target for Ziggo of €34 euros, a €6 premium to where it is today. It clearly things that Liberty Global could make a run to take 100% of Ziggo. It should know better.