The company that can get hold of the fourth mobile operating licence in Spain will be well placed to create yet another quad play, the fourth in the country, which could either disrupt the market, or more likely lead to a large payday for everyone, when one of the three major operators snaps it up.
This week, bidding began for the Teliasonera-owned Yoigo, which has always been disadvantaged in size and spectrum compared to the three quad play firms operating in Spain – Telefonica, Orange and Vodafone, each of them part of a multinational group.
Tiny cable operator Telecable has thrown its hat in the ring. It has been owned since July by UK-based investment outfit Zegona Communications, and indicates it has €380m to bid with. But the deal will be anything but straightforward. There has been recent interest in a three-way merger between the trio of cablecos which come after Vodafone’s leader Ono. Between them, those three – Euskatel, R Cable (Mundo R) and Telecable – could wrap up up the 400,000 cable homes not owned by Ono. Telecable claims to have 145,000 residential customers, more if you count enterprises.
No bid has been tabled by Euskatel, but these three do need to combine to gather momentum, and they also need a cellular operation. Right now, Yoigo brings with it 3.3m cellphone customers, to add to the unquantified number of MVNO subscribers which Telecable controls. It originally had an MVNO relationship with Vodafone, but has since shifted to Telefonica and has also been approached by Yoigo to use its 4G network.
Telecable mostly holds assets in the Asturias islands to the south west of Spain and probably serves a population of no more than 800,000, while Euskatel operates in the Basque regions of Spain in the north, reaching 2.2m inhabitants, and R Cable is in the north west, reaching 2.7m. Together, they could create a national cellular network, with fixed lines in regional strongholds, quite a complex, but capable, quad play.
Telecable also brings a network of WiFi homespots to the party (as does Vodafone Ono via its FON alliance). The smaller operator has 100,000 hotspots and homespots in its Wifisfera network.
In the end, the combined entity would become a tasty morsel for the owner of the remainder of the cable base in Spain, Vodafone, although Orange and Telefonica may also become interested if that cluster of companies ever gets together and comes on the market.
Telecable, in bidding for Yoigo, is thought to be up against other private equity players such as Warburg Pincus; another MVNO, Másmóvil; and some rich individuals. But whoever ends up owning Yoigo will do better with fixed assets in the ground, so they are likely to knock on the door of these smaller cable operators anyway.
TeliaSonera, which owns 77% of Yoigo, has been looking to sell for a while, but rejected a €1bn offer from Orange a year ago, partly because it could have hit regulatory issues. But now the price is coming down as growth slides in the competitive quad play market.
Zegona, the Telecable owner, was set up by former Virgin Media finance director Eamonn O’Hare, and it spent €640m buying Telecable back in July. Our feeling is that Spain is heading, like many European markets, to the point where there are only three major quad play operators, and where wholesale opportunities will have to be regulated for MVNO, over-the-top video and broadband in order to stimulate competition.