Vodafone Group Plc. (VOD) is reportedly contemplating a buyout of Germany’s largest cable network company, Kabel Deutschland Holding AG. Although there is no an official acknowledgment of this deal, it certainly brings Vodafone in the league of M&As taking place in the global telecom space.
Vodafone Group is the world’s largest revenue generating wireless communications operator and the second largest carrier after China Mobile Limited , based on subscription. The prospective multi-billion dollar acquisition would not only foster its presence in the European telecommunication market, but also consolidate its competitive position against equal potential players like Liberty Global Inc. (LBTYA) and Deutsche Telekom AG (DTEGY) in Europe’s largest telecommunication market.
Kabel Deutschland, with a net worth of €8 billion , covers 8 million German households. It offers wireline services like HD and analog TV, Pay TV and broadband Internet with speed up to 100 Mbps and fixed-line voice services through cable as well as wireless services through industry collaborations.
A possible takeover of this company would provide Vodafone an access to the existing setup of Kabel Deutschland and solidify its wireline business in the key European market. According to business reports, in the fiscal year ending Mar 31, 2012, Kabel Deutschland reported revenues of €1,700 million and an adjusted EBITDA of €795 million, which hints the financial synergies Vodafone can draw from the deal.
Competitive Landscape in German Wireline Biz
Similar to the other international markets, the German telecom market is governed by highly competitive market forces. Currently, there are three major companies — Kabel Deutschland, Deutsche Telekom and Liberty Global Inc. — which are dominating the fixed line segment.
These mega companies have been battling each other to penetrate deeper into the domestic market through mergers and acquisitions. Liberty Global Inc. remains ahead in this race with its purchase of Germany’s two leading cable providers — Unitymedia and Kabel BW — in 2010 and 2011, respectively. In 2012, Kabel Deutschland proposed to buy regional service provider, Tele Columbus. The buyout was however rejected by the German regulators citing competitive issues.
According to Reuters, while Deutsche Telekom enjoys a hefty position in the broadband market with 40% share, Liberty Global and Kabel Deutschland together enjoy 13% market share and continue to win customers through competitive offerings.
Vodafone’s Interest
When the whole world is going wireless frenzy and seeking LTE expansion plans, it might look like an out of the league strategy for a wireless company to seek expansions in the fixed line business involving significant investments. But, for Vodafone this acquisition marks an important move besides improving its market position.