Vodafone to dump mobile for Pay TV?


Mobile operator announces its intention to acquire Kabel Deutschland

Vodafone has announced its intention to acquire Kabel Deutschland in a transaction that will make Vodafone into a major integrated communications operator in Germany.

The resultant company will have with Euro 11.5 billion (£9.8 billion) of pro forma revenues in Germany, offering consumer and enterprise customers premium unified communications services. Following completion of the transaction, Vodafone will have 32.4 million mobile, 5 million broadband and 7.6 million direct TV customers in Germany.

Emeka Obiodu, principal analyst in Ovum's industry, communications and boadband practice, commented on the deal: 'This will instantly make Vodafone the largest pay TV provider in the country [Germany] and the second largest fixed broadband provider. Vodafone is already the second largest mobile telco in Germany with 32.4 million customers.

'There are three key insights from this. The first is that a successful deal will be Vodafone's single biggest M&A deal since its 2007 deal to enter into India. Given how the Indian deal was supposed to reflect a pivot into emerging markets, the deal in Germany is confirmation that Vodafone's domestic European market is sickly and requires a good dose of medicine to jolt it back to life.

'The second insight is that the precarious situation of Europe's telcos follows mostly from their exposure to mobile telecoms where the market is now saturated and prices have been on a steady downward trend,' continued Obiodu. 'Ovum expects mobile telecoms revenues in Germany to fall by a compound annual growth rate of 1% between 2013 and 2018. In fact, Ovum calculates that mobile revenues in Germany will only be about 87% of revenues in France. Yet, Germany will have 164% of the total number of mobile connections in France by end of 2013. And so by adding Kabel Deutschland's fixed broadband and pay TV customers, Vodafone is hoping to tap into other sources of additional revenue in the market. Ovum expects revenues from the cable broadband market in Germany to grow by a compound annual growth rate of 4% between 2013 and 2018.'

Concluding, Obiodu noted: 'The third insight is how this deal demonstrates the pragmatism of Vodafone. Whereas Vodafone was regarded as a mobile telecoms company in the past, its quest for survival in Europe means it is prepared to jettison its ideological purity. Corporate strategy is emergent so this is not really a big deal. However, the implication is that if Vodafone becomes Germany's largest pay TV provider, why would it not want to do the same in the UK, Spain, Italy or Netherlands? Watch this space.'

Vodafone stated it sees significant potential to accelerate the growth in Vodafone's and Kabel Deutschland's broadband, telephony and TV businesses by using Vodafone's brand and extensive distribution and by cross-selling to each company's customer base.

The operator ssaid its intention is that Kabel Deutschland's management will be responsible for the combined consumer fixed line business throughout Germany. The combined management team of Vodafone and Kabel Deutschland will have significant expertise across all segments of fixed and mobile communications and TV.

Vodafone expects in-market cost and CAPEX synergies with an annual run-rate by the fourth full year post completion exceeding Euro 300 million (£260 million) before integration costs, equivalent to a net present value exceeding Euro 3.0 billion (£2.6 billion) after integration costs. It also said it believes there is significant upside to potential from revenue synergies, including a net present value exceeding Euro 1.5 billion (£1.3 billion) from cross-selling and improved customer loyalty.


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