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New German Liberty Global deal may prick the interest of Euro regulators

The shape of German pay TV has been changed by this deal with Liberty Global, but Europe wide control that may prove a stumbling block


Published: 24 March, 2011


Liberty Global has landed the prize German cable asset, Kabel Baden-W├╝rttembergs (Kabel BW), which everyone in Europe has been talking about since it went up for grabs late last year. Few rivals for Kabel BW's hand could live with Liberty's financial power, and although we think Liberty has paid an exceptionally high price, at over €3.1 billion, this deal could secure the company its long wished for leadership in the German Pay TV market.

However like so many of these deals, the opera is not over until the fat lady sings, and there are many hurdles to overcome, not least of which is the financial regulator's approval in Germany.

For years the Bundeskartellamt, the German Cartel office, has said that Kabel Deutschland Group could not buy Kabel BW, one of four of the cable subsidiaries which Deutsche Telekom used to run. The other two made up Unity Media, a company acquired by Liberty Global a year or so earlier. This outcome will now make the German regulator smile, it has two strong rivals slugging it out in the cable sector in Germany, something it was always after, instead of one. KDG has almost 9 million German homes taking TV from it, while the new company will have the 4.6 million it acquired with Unity Media, and a further 2.3 million with this acquisition, a total of some 6.9 million. But it may have crippled its own public KDG operation by letting all the rich homes in Germany go to a rival.

While the merged Liberty operation may appear smaller in Germany than KDG by some way, the two units that Liberty hold throw off far more cash and need far less investment in their infrastructure - for instance KDG has only just announced this week that it has a VoD offering ready - so the ownership is really one sided in the other direction, and Liberty can focus purely on growing customers, while KDG has to worry about the amount it pays for debt, and how to upgrade its infrastructure. Of course like most cable operations in Europe, if not the world, neither of these two companies compete head on for customers, since the cable build out allocations have always been offered on a regional basis with KDG reaching the largest areas in Germany but the other three based in the Baden-W├╝rttemberg, North Rhine-Westphalia and Hesse regions.

But while the German regulator may be licking his lips at this deal, happy at last that there are two owners in German cable, European regulators may start to baulk. Liberty Global already has almost 17 million connected homes in Europe, and this will take it to over 19 million, giving the company even more content and equipment buying scale, and making it dominant or second placed in a number of key, high yielding, markets. However Germany is not one such market, with KDG averaging under €10 a month per home. The Unity Media operation of Liberty is closing in on €15, and Kabel BW is thought to be higher still. In other markets such as its first major European stronghold in the Netherlands, Liberty has an ARPU of some €23 a month, while its rival Ziggo has one closer to €33.

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