Sardinia based Tiscali is perhaps that last big sale of an independent ISP with a partial European reach, and newspapers in Italy and the UK, where its largest remaining operations are, suggest that Vodafone is serious with a bid so far up at the €1.4 billion level ($2 billion).
Tiscali is understood to have published a short list of bidders which will now be given access to the company’s detailed internal finances, and the press have named Vodafone, British Telecom, BSkyB, the Swisscom-owned Fastweb triple play in Italy, and Wind Communications, another Italian company owned by Orascom. Carphone Warehouse, fresh from a $2.14 billion deal with Best Buy of the US, is also known to be chasing the broadband business in the UK.
Only some of these have genuine interests in both parts of the Italy-UK based business. Some 99% of revenues for Tiscali comes from those two countries, and while Vodafone already has broadband lines in Italy courtesy of its October purchases of Tele2 in Spain and Italy, for $1.1 billion, BT also has some Italian enterprise interests, and BSkyB has a strong DTH satellite TV business in both the UK and Italy, and has no Italian broadband lines.
Interestingly Vodafone had an opportunity to buy Fastweb in Italy, complete with its legendary IPTV service there, to create a full quadruple play in Italy, but it felt that the $4.9 billion asking price was perhaps too much even for one of its premium territories and let that go to Swisscom. Already Vodafone has a cross marketing deal with Fastweb there but this could only make for a weak quadruple play.
The truth is that in the past it has been a single minded mobile giant, and Vodafone is only just starting to be ready to consider just how to manage a quadruple play set of services. It has only just worked out how to bill for dual mode services and because of its size finds such shifts in strategy glacially slow to engineer.
If it did acquire Tiscali, it would have to manage its way through a billing merger with Tele2 in Italy before considering how to benefit the fixed line service from bundling with mobile services.
But moves at the German based Vodafone owned Arcor show that it does have the heart for this type of transition. This week Vodafone cut an agreement to acquire the 26.4% interest in Arcor that it does not already own from Deutsche Bahn AG and Deutsche Bank AG, paying €474 million ($747 million) in cash. Vodafone has left these assets lying fallow, virtually running themselves, since it picked them up as part of the Mannesmann acquisition in 2000 and only began to work them into the mobile offering over the past two years or so.
Arcor has 2.6 million DSL lines in Germany, a 14% market share, and Vodafone still talks about fixed-mobile integration rather than fully quadruple play there despite the fact that in January it launched an IPTV service for the company, using Alcatel network equipment and middleware, NDS conditional access, Harmonic encoders and Pirelli set tops and home gateways.
That was seen as a first step in a long game of bringing a European wide quadruple play together, with this supplier combination to be rolled out across the wider Vodafone footprint, including Italy, Spain and potentially on the leased BT lines Vodafone works with in the UK. Now it could replace those BT lines, partially at least, with the substantial UK broadband lines that Tiscali has in the UK. At present Tiscali got €198 million of last quarter’s revenue from UK broadband and the Homechoice IPTV service it acquired in London for $190 million in August 2006; and just €75 million from its Italian operations. The Tiscali UK has 1.87 million ADSL lines and Italy just 580 million.
Tiscali has since launched a 50 channel IPTV service in three cities in Italy, also based largely on the Homechoice MyTV software, in Rome, Milan and its native Cagliari.
Add this to the Spanish Tele2 operations that Vodafone bought, and the partnership with Vivendi over SFR in France, which in turn can partner with Neuf Cegetel for Broadband lines, and Vodafone would be on track to build slowly towards a full quadruple play in all the major European markets.
When Vodafone acquired the 950,000 broadband lines in Tele2, it also received quite a few dial up customers, but we could put the cost per broadband customer at around €800 or $1,260. At the same price per broadband customer that would make Tiscali worth something just under €2 billion ($3.15 billion) and that means that the bidding has yet to start in earnest for the company. And BSkyB, which has made good on its purchase of one of the UK’s largest DSL unbundlers Easynet, could feel desperately keen to emulate that business by adding an Italian broadband operation, so may be competitive in the auction.
Tiscali has already sold off most of its ISP operations around Europe selling its German operations for $65 million, and Netherlands operations for $323 million. It still owns a small operation in the Czech Republic. Binding offers for Tiscali have to be in by the end of June.
Meanwhile Vodafone said this week that it has acquired ZYB, a privately-owned Danish company which operates a social networking and online management tool enabling handset owners to back-up and share their handsets’ contact and calendar information online. The deal cost just €31.5 million.