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Liberty does tidying up pre-Vodafone – assuming the deal proceeds

The sale just before Christmas of 774,200 DTH TV customers by Liberty Global is a rationalization that has probably come too late to save the value in this customer base. When last reported individually, these markets were Romania (356,500), Hungary (258,400), the Czech Republic (99,100) and Slovakia (75,500) – but since 2017 Liberty has lost some 45,000 DTH customers – likely due to lack of attention and this segment already being unofficially on the market.

The cheeky private equity-run M7 was perhaps always the most likely company to take them on, due to its attention to detail and its ability to make money out of smaller existing DTH customer bases, which are perceived in the market as weak. It acquired the two low price operators in the Czech Republic and Slovakia a few years ago, and by taking out one of the opposition and spreading its costs across more subscribers, it will likely make this operation more stable, with better margins. The other great change in Slovakia in TV has been the rising tide of the local incumbent telco owned by Deutsche Telekom, which will keep M7 honest there and its prices low.

However, the larger territory of Romania is something of a cut-throat business, price sensitive and with a local incumbent in RCS&RDS which survives primarily in the Romanian market, having exited or de-emphasized other local Eastern European markets of late. A win-win might be for M7 to later sell the UPC DTH operation there to RCS&RDS, although that may be prevented both by anti-trust considerations and hidden terms of this particular deal – we don’t think Liberty Global UPC could stomach doing a deal with RCS&RDS directly or even eventually, after so many years at each other’s throats.

The price tag of €180 million ($205 million) values each customer at $232 each, way below the pricing for triple play customers in Europe right now and this deal has the sense of continuing to rationalize and tidy up the Liberty Global European assets so that the operation can run with less depth of management. In other words, as a leaner operation for Vodafone management. From M7’s Point of view, this is a very nice deal.

Liberty Global has already agreed to sell its operations in Austria to T-Mobile and its German, Hungarian, Romanian and the Czech businesses to Vodafone, and is perhaps putting its house in order given that Vodafone has no desire to take on a DTH operation – it simply does not offer sufficient quad play opportunities for a mobile company. Liberty Global has already agreed the sale of its Netherlands operation into a 50/50 owned business with Vodafone – one that will it will almost certainly give up entirely to Vodafone at some point – leaving it with just the UK, Belgium, Switzerland, Poland and Ireland operations in Europe – as it begins to focus on easier opportunities in Latin America and the Caribbean.

The deal should close in the first half of 2019 and the local brands are FocusSat in Romania, UPC Direct in Hungary, which will have to change, and freeSAT in the Czech Republic and Slovakia, likely to be subsumed under the M7 brands there.

The European Commission has already said that it will conduct an in-depth investigation which may prevent Vodafone buying the Liberty Global cable business in Germany, Hungary, the Czech Republic and Romania, in which case this deal may also not survive.

Meanwhile, VodafoneZiggo in the Netherlands has published a reference offer for wholesale fixed access, after the local Authority for Consumers and Markets (ACM) issued a directive for it to do so in September. The actual rates will come out later this month and, if they are too expensive, may not be acceptable to the ACM. Liberty Global has fought long and hard to prevent it having to open up its cable markets in the Netherlands, as it already has had to in neighboring Belgium.

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