If Tele2 has serious ambitions of becoming a major triple play service provider, the Nordic telco will have to retrace its steps around Europe and buy back some of the fixed line assets it sold off over the past decade. Following our coverage of Tele2’s $3.3 billion takeover bid of Swedish cable TV and broadband provider Com Hem last week, it became apparent how the deal could impact markets and associated vendors further afield.
The extent of Tele2’s fixed line M&A history is vast, as the table below demonstrates. The mobile operator got out of the fixed line and ISP game early on and focused on fortunes in Central and Eastern Europe and the Baltics, perhaps a smart move at a time before many of these markets were plunged into recession and valuations fell through the floor. Although these soon recovered, meaning any buy back deals for the assets listed here will come at a premium.
The Com Hem deal jumps out from the Tele2 M&A history list as the costliest deal to date, suggesting that Tele2, the company renowned as Europe’s great shrinking operator, has at last taken a U-turn and is returning to shake up the market, yet Tele2 is a long way off from being the powerhouse it once was. Outside of Sweden, Tele2 has a handful of fixed line customers in the Netherlands, but hardly enough to affect competition.
As noted last week, the combined operations of Tele2 and Com Hem will have 1.1 million digital TV subscribers, 800,000 broadband subscribers and a mobile customer base of 3.9 million. 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 technology, 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.
When Vodafone bought Tele2 Italy and Tele2 Spain it paid around $1,708 per broadband subscriber, some 638,000 users, but the price included 2.2 million dial up customers in Italy and 310,000 in Spain. Com Hem has 736,000 broadband subscribers in Sweden, which works out at Tele2 paying $4,483 per RGU, around 4 times the price of some of its earlier sales, assuming that broadband is indeed what attracted Tele2 to the table.
As well as letting go of cable and fiber infrastructure, Tele2 confused everyone by selling off cellular assets, notably its Norwegian business to TeliaSonera in 2014 for $750 million, as well as divesting its Austrian MVNO operations in 2007 to Telekom Austria.
Tele2 radically altered its European footprint at the time, selling out of heavily saturated countries and taking holdings in Central and Eastern Europe instead. This included the sales of its French operations to SFR, part owned by Vodafone at the time and the sale of Spanish, Italian and Portuguese operations directly to Vodafone. At the time we saw the value of ISPs all over Europe going up, as purely cellular operations like Vodafone, and to some extent all the European majors outside their home markets, were on the hunt for fixed lines over which to deliver Quality of Service controlled video services – in other words, video good enough for the TV.
Back in 2013, Tele2 launched the Tele2 TV player, using an OTT platform from Excito, although the company website has been removed so we are unsure if Excito is still in existence today. The service offers a number of different TV channel packages with an on-demand service and a movie service. It can be accessed from a smartphone, tablet, or streamed to an HDMI enabled TV through the Tele2 TV Player set top, launched only in the Swedish market.
More and more consolidation, particularly concerning wireless players taking up traditional TV businesses, in turn means that video technology vendors are becoming more accustomed to dealing with mobile network operators, and adjusting their business models accordingly is a strategy that many have embraced, while some may be less inclined to adapt.
Our Rethink TV service tracks the top OTT services globally and their vendor suppliers, listing the vendors used by Com Hem which will soon be facing a very different customer to the Com Hem of old. TiVo is the key OTT video technology partner for Com Hem, supplying the UI and middleware, as part of a TV turnaround in which the operator installed a hybrid IP/QAM system.
It uses a multiDRM system incorporating cardless Verimatrix ViewRight clients and ViewRight Web support, with set top access using VCAS, as well as deploying Kudelski’s SmarDTV CI Plus product around the Verimatrix conditional access system.
For encoding, Com Hem switched from Harmonic to Elemental, an AWS company, to transition to a software-defined headend which worked with linear video across cable, IPTV and OTT. In its CDN architecture, Com Hem uses Edgeware flash memory based VDN for CDN cache, using its Unified server product which supports IP and QAM content simultaneously and this plugs into a SeaChange Adrenalin back office suite handling the CMS and subscriber database.
Finally, Sweden’s Labatus, which was acquired last year by Eurofins Digital Testing, says Com Hem is a customer. Labatus offers automated test, planning and strategy for TVs, set tops, smartphones, tablets, and applications across iOS, Chromecast and Android platforms.
This is just one example of the wider implications of cross-market consolidation, pointing to a future where triple or quad play service providers owned and operated by MNOs could spread like wildfire – sweeping up fixed line assets to support an increasingly wireless future.