Persistence has finally paid off for the U.K.-based Vodafone telecommunications group with its acquisition of Germany’s largest cable operator Kabel Deutschland for €7.7 billion ($10 billion) agreed last week. The downside for Vodafone is that the price has quadrupled in the three years it has been pursuing the German operator on and off, but failure would have been even more costly.
Being predominantly a cellular operator, Vodafone has been facing steadily declining revenue from basic voice services, just as fixed-line Telcos have done for much longer. Now fixed-line communications has made a comeback, and broadband is increasingly seen as the pivotal point in multi-play services that are now the focus of competition between Telcos, mobile service providers and pay-TV operators alike.
For Vodafone the Kabel Deutschland acquisition is a crucial step in its strategy of transformation from an almost pure play mobile operator into a combined TV, Internet and telecoms group spread out more evenly across fixed-line as well as cellular networks across Europe.
The deal is also a milestone in Europe’s power struggle among major players including Sky, Vodafone itself and U.S.-owned Liberty Global operating cable services in 12 European countries including the U.K., Germany, Switzerland and the Netherlands. Liberty Global recently submitted a bid for Kabel Deutschland, but uts effect was merely to push up the price Vodafone had to pay without having much chance of success. Liberty Global already owned Unity Kabel BW with 7.1 million customers gained through separate acquisitions of Unity Media and Kabel BW, and would certainly have faced strong regulatory opposition to a Kabel Deutschland take over, as this would give it near-total control of Germany’s cable sector.
At the same time Vodafone has been eyeing an even bigger prize, Liberty Global itself, which would make a good fit since it would combine its huge presence in cellular services with Liberty’s cable TV base of around 23 million customers in Europe. Many analysts reckon that Vodafone’s acquisition of Kabel Deutschland makes a bigger move for Liberty Global itself unlikely, not least because that would face the same regulatory opposition in Germany, as well as in some other European countries.
But Vodafone could still afford it by trading in its 45 percent stake in Verizon Wireless, worth around $120 billion. It could effectively give up on its U.S. ambitions to concentrate on becoming a dominant power in European multiple play. With 116.4 million US customers, Verizon Wireless is a major cash cow, with total revenues for 2012 up 8.1 percent at $75.9 billion and ARPU up 7.7 percent at $146.50 per month, compared with 2011. Only the prospect of substantial strategic gains would persuade Vodafone to sell this stake and in effect give up global ambitions in return for becoming Europe’s biggest multi-play provider.
