The $40 Billion Question: Will Europe Block This Year’s Mega Cable Deals?
John Malone’s Liberty Global reportedly won’t boost bid for Germany’s Kabel Deutschland amid antitrust concerns.
BERLIN – John Malone’s Liberty Global is reportedly considering withdrawing from the bidding for Kabel Deutschland, Germany’s largest cable operator, amid worries that Europe’s antitrust authorities could block any deal that further strengthens Malone’s Euro cable empire.
Liberty already owns Germany’s No. 2 cable operator, which recently expanded its operations in the Netherlands with the $810 million acquisition of a minority stake in Dutch cable group, Ziggo, and, just last month, completed a $24 billion deal to buy U.K. pay-TV group Virgin Media. Liberty Global has around 25 million cable customers, the bulk of them in Europe.
According to media reports, while Malone hasn’t made a final decision yet, Liberty will likely not be increasing its offer for Kabel Deutschland after mobile giant Vodafone bid $10.1 billion for the German cable company. One of the main reasons appears to be fears that European competition watchdogs could block a Liberty deal.
Mergers and acquisitions activity has been on the uptick in Europe’s telecommunications market over the past year, with around $38 billion in deals announced in the last 12 months. In addition to the Virgin Media and Kabel Deutschland sell-offs, Spain’s Telefonica last month confirmed plans to sell its mobile-phone business in Ireland to Hong Kong-based group Hutchison Whampoa for at least $1 billion.
The consolidation is part of a global merger trend in the telco business as cable, pay-TV and mobile providers combine operations to generate economies of scale and strengthen their position in individual national markets. The Kabel Deutschland deal is typical: a takeover by Vodafone would add the cable group’s 8.5 million subscribers to Vodafone’s massive mobile and growing broadband operations in Germany, allowing the company to offer combined Internet, TV and mobile services to customers in Europe’s largest economy.
But Europe’s antitrust watchdogs have repeatedly come out against consolidation, blocking deals that threaten to reduce competition. Last year, for example, the European Commission vetoed a move by Vodafone to merge with a rival in Greece and demanded major concessions from Hutchison for approval for its deal to combine the third- and fourth-largest wireless operators in Austria.
Germany’s Federal Cartel Office has already warned that it will take a careful look at any Kabel Deutschland deal. The size of any takeover means that even if the German authorities approve it, it would likely also be submitted to the European Commission for a final green light.
The stakes are high. Approval for a Kabel Deutschland could send a signal across the continent spurring more mergers. In Germany, former state monopolist Deutsche Telekom will come under further pressure and KPN and Telefonica, which run the third- and fourth-largest wireless operators in the country, respectively, would likely restart merger talks. In Italy, Hutchison would get additional support for a possible bid for Telecom Italia’s wireless operations. Vodafone could go ahead with a deal to acquire Fastweb, an Italian fixed-line company owned by Swisscom and could target Spanish cable operator Ono.
Rejecting the deals, on the other hand, might further hamper the development of high-speed networks in Europe, considered key for the roll-out of online VOD and streaming services across the continent. In a recent speech to the European Competitive Telecommunications Association, the VP of the European Commission, Neelie Kroes warned that without the proper legal framework in place, Europe’s telcos could become “a pack of zombies” left stranded as companies from America and Asia take the lead.