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First fixed-mobile merger of 2018 as Tele2 Sweden buys Com Hem

The first case of European consolidation in 2018 has already emerged, as Swedish mobile operator Tele2 announced a $3.3bn takeover of cable TV and broadband provider Com Hem. A mega triple play operator will be born through the merger, putting pressure on incumbent MNO Telia and cable TV rivals TeliaSonera and Telenor’s Canal Digital – in a country renowned for its exceptional broadband speeds.

Com Hem has invested significantly in network infrastructure in recent years and also bolstered its TV and fiber to the home opportunities by acquiring Boxer less than two years ago, as well as embracing multiscreen and IP with open arms, which has transformed the company’s TV fortunes. The cable provider has long been looking for a way into mobile – a piece of the puzzle second-placed Tele2 has this week delivered on a shiny platter.

Com Hem is ahead of the curve in R&D efforts, and there may be doubts from the board that the new owner will continue to operate in this forward-thinking manner. That said, we recall a talk by Com Hem’s chief architect, Rasmus Aveskogh, at Cable Congress last year, in which an intriguing method of data mining was described for improving customer satisfaction ratings, reducing churn and growing revenues beyond expectations. Interestingly, it was at this very event in Brussels where Com Hem’s CTO, Thomas Helbo, declared that the company was open to a takeover offer.

The mining system helped achieve a turnaround from bottom to top of the ISP leader boards, by collecting 360GB of data a day, from sources such as streaming logs, gateways, network probes, and even consumer’s social networks. Com Hem then ‘enriches’ these using additional CRM data with Hadoop, the open source big data processing framework, incorporating machine learning technologies and visualization tools to assess consumer experience data in the network.

For Tele2, Com Hem’s fixed network assets could make a valuable boost to operations on its mobile network, with additional infrastructure for wireless backhaul. In addition, Com Hem has geocoded its entire network – enabling it to assess the RF impact on the CMTS (cable modem termination system), based on topology. Sweden boasts the world’s third fastest average broadband speed at 22.5Mbps.

After a mid-noughties acquisition spree, Tele2 sold off its Spanish and Italian fixed line assets to Vodafone in 2007 and has been in retreat ever since with rumors that it would sell out in the Netherlands, and it was announced just last month that Tele2 Netherlands and Deutsche Telekom’s T-Mobile will be merging operations. Tele2 also has a small fixed line presence in the Netherlands.

On the video side, Com Hem does not have an over-the-top service as such, but a multiscreen version of its cable TV service Com Hem Play, part of a technology turnaround facilitated by a TiVo UI and the installation of a hybrid IP/QAM service which helped the Swedish operator gain TV customers. This clever architecture sends the electronic programming guide and decryption keys over IP, but still sends video over QAM.

Com Hem will soon be offering Paramount+ to pay-TV subscribers, the SVoD service currently in development by Viacom Media Networks. Com Hem has so far decided not to wage war against the pure play providers by coming out with its own SVoD offering, but it will eventually have to make an entrance to compete with MTG ViaPlay, TeliaSonera and Netflix.

The combined operations of Tele2 and Com Hem will have 1.1m digital TV subscribers, 800,000 broadband subscribers and a mobile customer base of 3.9m. Com Hem’s DTT arm Boxer has been leaking subscribers, dropping 11,000 in Q3 2017 to 456,000, but these losses have been offset by gains at its cable offering built around TiVo, increasing by 4,000 in the last quarter and 20,000 year-on-year, totaling 259,000. Broadband uptake has been steady, adding 47,000 subscribers since Q3 2016.

The largest shareholder in both Tele2 and Com Hem, Nordic investment firm Kinnevik, has projected revenue synergies of $110m within the next five years, in a deal expected to complete in the next quarter. Pending investigation by competition authorities, current Com Hem CEO Anders Nilsson will become CEO of Tele2, while Kinnevik’s recently employed chief executive Georgi Ganev will join as chairman of the board.

Combined net income for the two companies for the year ended September 30 2017 came in at $3.9bn, with EBITDA of $880m.

Com Hem CEO Anders Nilsson said: “Merging is the best possible next step for both companies as it will enable us to meet the demands of tomorrow and unleash the power for the best possible digital quality of life in Sweden.”

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