Vodafone plans to acquire certain Liberty Global assets


Goes up against Deutsche Telekom with planned acquisition of Liberty Global operations

Vodafone has agreed to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania for an enterprise value of Euro 18.4 billion. This accelerates Vodafone’s converged communications strategy through in-market consolidation in Vodafone’s largest market, Germany, and in Vodafone’s Central and Eastern European markets, the Czech Republic, Hungary and Romania.

However, Paolo Pescatore, vice president, multiplay and media at CCS Insight, commented: “This is not a game changing move. Both companies are struggling to grow in a rapidly converging world. If anything, it reinforces the importance of owning both fixed and mobile networks on the road towards 5G. The joint venture in the Netherlands’ has laid out the blueprint for both companies to come closer together.
“For Vodafone, the acquisition of selected Liberty Global assets is a strategically sound approach to strengthen its position,” continued Pescatore. “Convergence is one of Vodafone’s strategic pillars, with nearly 30% of European service revenue now coming from its fixed-line business. It is consistent with previous acquisitions (Kabel Deutschland in Germany and Ono in Spain). For Liberty Global this is a further sign of disposing of non-core assets, specifically in markets where it lacks the resources to compete or needs to invest heavily to match rivals. Austria is a prime example of this. We expect Liberty to use these funds to strengthen its position in other markets such as the UK.”

This deal, if approved by regulators, will make Vodafone the top next generation network (NGN) owner in Europe, with 54 million cable or fibre homes ‘on-net’ and a total NGN reach of 110 million homes and businesses, including wholesale arrangements.

Research director at Analysis Mason, Rupert Wood, said in a blog on the acquisition that, “Vodafone’s long-term strategy is to be the only similarly-sized European-level competitor in fixed and mobile to the incumbents, and to have the highest number of fixed–mobile converged (FMC) accounts in Europe (an ambition shared with Deutsche Telekom and Orange)”.

He continued: “Latest available figures show it is only fourth. Orange was the clear leader with 10.6 million FMC accounts in Europe (March 2018), whereas Vodafone had 4.1 million (December 2017). The acquisitions will make Vodafone clear number two in terms of massmarket revenue in each of the four markets (in Romania it will be second to Orange, with former incumbent Telekom third).”

The deal would create a converged national challenger to the dominant incumbent, Deutsche Telekom, in Germany, with the scale to accelerate achievement of the German government’s digital ambitions, bringing Gigabit connections to around 25 million German homes (62% of total German households) by 2022. The combination of Vodafone and Unitymedia’s non-overlapping regional operations will establish a strong second national provider of digital infrastructure in the German market.

Wood went on: “[Deutsche] Telekom opposes the German acquisition, ostensibly on the grounds of pay-TV concentration. In the past, Telekom owned all the cable networks to the building, but was forced to sell them. The pay-TV market is more susceptible than that of broadband to quick disruption: from pure all-IP plays of the international Netflix kind, from Sky’s deepening all-IP portfolio, or from upstart domestic players like PurTV. It is a legitimate concern, but one that may be transient. Ultimately, we think all cable operators will see their revenue-split shifting away from TV and towards broadband.”

Said Pescatore: “Vodafone now becomes a powerful rival to Deutsche Telekom in bundled services. However, we strongly believe that regulators will block or restrict the deal. Vodafone and Liberty Global have a relatively solid presence in the fixed-line and TV markets, so any move would cut the number of companies in both segments.”

The deal will transform Vodafone’s fixed line and convergence strategy in key CEE markets, complementing Vodafone’s existing mobile operations in the Czech Republic, Hungary and Romania. In these markets, the combined businesses will reach over 6.4 million homes (39% of total households) and will serve 15.8 million mobile, 1.8 million broadband and 2.1 million TV customers.

There are estimated cost and CAPEX synergies of approximately Euro 535 million per year before integration costs by the fifth year post completion, with an estimated net present value of over Euro 6 billion after integration costs. Estimated revenue synergies with a net present value exceeding Euro 1.5 billion from cross-selling to the combined customer base.

The Transaction is subject to regulatory approval, with completion anticipated around the middle of calendar 2019.

Vodafone Group chief executive, Vittorio Colao, said: “This transaction will create the first truly converged pan-European champion of competition. It represents a step change in Europe’s transition to a Gigabit Society and a transformative combination for Vodafone that will generate significant value for shareholders. We are committed to accelerating and deepening investment in next generation mobile and fixed networks, building on Vodafone’s track record of ensuring that customers benefit from the choice of a strong and sustainable challenger to dominant incumbent operators. Vodafone will become Europe’s leading next generation network owner, serving the largest number of mobile customers and households across the EU.”


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