Liberty’s asset sales would not pave the way to a Vodafone merger

Liberty Global is reported to be selling its Austrian and Swiss businesses, leading to speculation that it is putting itself in a better position to merge lock stock and barrel with Vodafone. However, the real block to that often-rumored merger would not be these subsidiaries, but Germany.

UK newspaper The Telegraph ran a story last week suggesting that Liberty Global is looking for a buyer for those Austrian and Swiss assets, but the most likely reason is not Vodafone, but because the two properties are closest to maturity, in the broad Liberty cable portfolio, and hardest to grow.

In Switzerland it is up against a rejuvenated Swisscom, and losing video subscribers quite rapidly, and yet not making up for them with broadband; while in Austria progress is at best flat.

Clearly the UK’s Virgin Media and Germany’s UnityMedia are the stars of the Liberty Global show, growing broadband in particular very rapidly; while in Belgium, though it still does not have 100% ownership, it has a massive cellular operation to fall back on.

Its Central and Eastern European operations, where both costs and income levels are far lower, are still showing growth and in Latin America and the Caribbean, it is operating in markets with lower levels of penetration.

If a third party really has approached Liberty Global with a view to buying the Austrian and Swiss operations, it seems likely it would listen to a sensible offer, but this does not seem to relate to selling the entire Liberty business to Vodafone. But the parts of Liberty that Vodafone would really want are in Germany and the UK.

In Germany, the dominant entity that would be created by merging UnityMedia with Vodafone’s Kabel Deutschland and its mobile arm, would certainly be blocked by the competition regulator. One reason Vodafone won the battle with Liberty to buy Kabel Deutschland was that the Liberty option would have met regulatory barriers.

In the UK, however, there is a strong deal to be done if Vodafone were to buy Virgin Media, the largest cableco in the country. That would make Vodafone far more competitive in quad play services with the BT/EE combination, but it would not be

dominant in mobile, broadband or pay-TV, so it should get past regulators.