This morning it was confirmed that Vodafone has agreed to acquire Liberty Global’s cable networks in Germany, Hungary, Romania and Czech Republic for EUR 19 billion. The acquisition is Vodafone’s largest since 2000, when it acquired Mannesmann in Germany.
It has been clear for over a decade that a substantial portion of European telecoms service subscribers prefer to bundle their services, rather than to source them separately. The main reason is to save money, by paying less for the bundle than the sum of the separate service prices. Initially, bundling was focused on fixed line services, first dual play (fixed-line telephony plus broadband) and then triple-play (dual-play plus TV).
More recently, operators offering both fixed-line and mobile services have been adding mobile to their fixed-line bundles to produce so-called quad-play offerings. The appeal of quad-play to European consumers has been demonstrated strongly in Spain, for example, where Telefonica announced that it had 4.3 million customers signed up to its Fusion quad-play bundles at the end of 2017. In Western Europe as a whole, IDC estimates that at the end of 2017 about 10% of consumer mobile subscriptions were part of a quad-play bundle. This demonstrates both that quad-play has strong appeal, and that there remains a lot of potential to expand the quad-play subscriber base in Europe.
In the context of the continuing trend towards quad play, the logic behind a tie-up in Europe between Vodafone’s mobile-only network assets and Liberty Global’s fixed-only network assets has been clear for a long time. The merger in Germany announced today, for example, was mooted three years ago, although at that time the two parties could not reach an agreement on price. More recently, the two parties tried a different approach in the Netherlands, forming a joint venture between Vodafone’s mobile operation and Liberty Global’s Ziggo cable operation. However, for Vodafone the strategically preferable option remains acquisition, because if the present is bundling, then the future is convergence. Large incumbent operators in Europe, including Deutsche Telekom, Orange and Telefonica, are already working on converging their networks to form a single infrastructure accessed by both fixed-line and mobile connections. Vodafone also needs to develop convergence in it network infrastructure, in order to remain competitive.
The “dog that didn’t bark in the night” (yet) is Vodafone’s home market, the UK. Liberty Global owns the UK’s nationwide cable operator, Virgin Media. Vodafone has no consumer fixed-line operations in the UK, beyond a small broadband business based on re-selling BT’s wholesale service. BT has been the UK’s only combined fixed-line and mobile operator since 2016, following its acquisition of EE, the UK’s largest mobile operator. Joining these dots has led to speculation that Vodafone might try to do a deal with Liberty Global in the UK – and the scale of the deal Vodafone has struck today with Liberty Global will inevitably lead to a renewal of such speculation. Another scenario, however, is that Liberty Global could use some of the EUR 10.6 billion in cash it will make from this deal to strengthen its operation in UK and Switzerland, where it already has a large and well established MVNO operation.
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