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More cable consolidation hits Germany

By PETER WHITE

Published: 30 March, 2012

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Germany's Bundeskartellamt cartel agency finally has what it wished for. It has a voracious Telco which has dived into the video markets, and it has a healthy satellite TV player, strong free to air TV with early mover advantage into the interactive hybrid service HbbTV and it has two cable TV players, all beating each other up for domination of the TV market.

The Bundeskartellamt has tried hard to avoid having a single cable player dominating the skyline, as has happened in the UK, France and Spain, and instead has something closer to the Netherlands and Belgium, where forces are split into two regionally strong cable operators.

But we must all be careful what we wish for and Germany now has many hundreds of tiny municipal cable players as well as companies like Telecolumbus which are stranded, not big enough to flourish and too big to fold. Someone has to buy them.

Luckily the sudden financial improvement at Kabel Deutschland Group (KDG), make this a possibility. And without it, KDG would be the largest group, with the smallest potential, while the UPC owned combination of Unity Media and Kabel BW would have taken all the rich ground. If UPC was allowed to pick up all the German cable operators, it would leave KDG with no growth and few options.

KDG has tried before to acquire Telecombus but was scuppered by the Bundeskartellamt. But this time it is unlikely to block any deal, having given antitrust approval for Liberty Global's UPC to take over Kabel BW, the country's third largest cable operator, late in 2011. This was in return for concessions, such as removal of encryption of basic free content, and allowing competitors to bid on contracts with housing associations, which make up a large part of sales.

There is general recognition that competition from Liberty Global, Sky, and Deutsche Telekom is getting stronger to the extent that smaller cable operators are unlikely to survive on their own. In particular Telecolumbus cannot go limping on as it is shedding subs, as the others mop up, in what looks like being a fast expanding German pay TV market over the next three years, from its historic low base. We expect the market to grow by around 50% over that period, although operators will also be seeking to improve ARPU, which is low compared with other European countries. At KDG itself it stands at just €9.86, a fraction of Sky's ARPU levels.

For a deeper analysis of this deal, go to www.rethinkresearch.biz or request the entire issue of our paid sister paper Faultline at www.rethinkresearch.biz/faultline.

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