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Elisa, Starman deal to create Estonia’s first quad play provider

Nordic cable consolidation has taken another twist this week, with Finnish telecommunications firm Elisa announcing its intention to purchase 100% of Estonia’s largest cable operator, Starman, for €151 million ($160.6 million).

Elisa already operates in Estonia, but only as a mobile network operator (MNO) with around 664,000 mobile subscribers, so the acquisition of Starman will gift Elisa with an Estonian customer base consisting of 122,000 cable TV subscribers and 88,000 broadband subscribers, as well as 60,000 DTT (digital terrestrial television) subs and 33,000 on telephony.

Pending regulatory approval, the deal could present the launch of a new full quad play service provider in Estonia, something which may come back around to haunt Telia Eesti (formerly Eesti Telekom), which sold its stake in Starman in 2000. Telia boasts a broadband market share of almost 60%, but has no mobile assets to slap on the table in Estonia, unlike its operations in Sweden and Finland where it is dominant in mobile.

Over the past year, Starman has been rumored to be eyeing up its own entrance into quad play, and it was suggested that the company would make a move for Elisa’s Estonian mobile operations, but instead the tables have been completely turned.

Starman has the largest pay TV market share in Estonia with its combined cable and DTT TV subscriber base giving it approximately 35%. It also has a 20% share of the fixed broadband services market, but trailing far behind Telia’s 240,000 broadband subscribers.

Starman only launched its new OTT service in September this year, based on SeaChange Adrenalin multiscreen technology. The service includes restart TV and network PVR Across multiple devices, as well as on-demand movies and TV shows, after it first launched a library of on-demand content with a previous version of SeaChange in 2012.

Meanwhile, Telia ventured into OTT video in 2014 with its Minu.TV OTT VoD offering, costing €5 a month ($5.30), and also runs the multiscreen IPTV service Telia TV exclusively for broadband subscribers, also priced at €5 a month.

However, there is an OTT entrant in Estonia that all other services now find themselves up against, as the highly successful MTG-owned Viaplay recently launched in Estonia, as well as Latvia and Lithuania this year having launched across the Nordic region five years ago.

The company already has some 100,000 pay TV customers sold into Estonia already via DTH, to build from. It is priced at €10 a month. Viaplay has plenty of captive sports programming and will put up a challenge against Telia TV and Starman, and has signed up with mobile telecom operator Tele2 to make Viaplay available to its mobile customers across the Baltics.

Perhaps Elisa could adopt a similar strategy by delivering Starman’s OTT service to its existing Estonian mobile subscribers, while its primary rival Telia has become an operator aiming at reducing equipment spend and is pushing to move set top functionality into the cloud, much like Deutsche Telekom – replacing the set top with internet connected smart TVs running a suitable app.

Another way of doing this is to replace the CA by a CAM module that slots into compliant smart TVs and set tops, using the CI Plus standard, which also adds copy protection.

As part of the deal, Starman’s Lithuanian cable subsidiary Cgates will remain under ownership of its parent companies, the private equity firms Polaris Invest and Com Holding.

Cgates recently acquired rival telco TPG for an undisclosed fee – increasing Cgates’ subscriber base by 18,000 to a total of 170,000. Starman’s chairman Aivo Adamson said the Lithuanian market is far more fragmented than its native Estonia and has a strong regional dimension. Starman originally bought Cgates for $62.8 million in December 2014.

Part of the problem with Scandinavian consolidation is that the regulatory environment is so pro-competition. Telia dropped out of cable when it sold Stofa in Denmark to a private Equity group, which leaves another potential for consolidation in Scandinavia. Telia now has smaller IPTV pockets around the Nordics.

Finland has a dominant cable supplier in DNA Oy, which also competes with Elisa cable assets. Liberty Global has, from time to time, bought cable assets in Scandinavia but has always ended up selling the service off before it lost too many subscribers.

Elisa’s bid for Starman comes just six months after it had its €107 million ($119 million) takeover of Anvia Telecom in Finland approved by shareholders. This includes four Anvia subsidiaries; Anvia IT Services, Anvia TV, Anvia Hosting, and Watson Nordic. Elisa trumped rival operator DNA’s €120 million ($133 million) offer, as well as the €130 million ($144 million) that Telia placed.

Telia is looking to increase its broadband dominance, with the recent announcement that it will begin closing down its ADSL fixed broadband services, planning to upgrade all subscribers to fiber, VDSL2+, G.fast and LTE equipment by the end of 2020. Of Telia’s current broadband base of 240,000 subscribers, some 90,000 use ADSL.

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