T-Mobile Netherlands has agreed to sell its subsidiary Euronet, which includes the broadband provider Online.nl, to CDS Group. Rumours of a sale of Online have circulated multiple times since T-Mobile inherited the broadband activities with the acquisition of Orange Netherlands in 2008. CDS Group is the majority shareholder of M7 Group, which provides pay-TV services over SES Astra in the Netherlands (CanalDigitaal), Belgium (TV Vlaanderen and Telesat), Austria, Czech Republic and Slovakia. M7 recently named Marco Visser, a former executive at Dutch incumbent KPN, as its CEO. CDS Group is owned by Providence Equity Partners and the Dutch firm AirBridge Investments.
Online.nl was originally an unbundler on KPN's ADSL network but has since migrated to buying direct wholesale services from KPN. In June 2013, T-Mobile grouped the activities in the company Euronet Communications.
The unit has limited value, acting as a pure reseller with likely slim margins in a market under pressure. FTTH and cable operators have been steadily taking customers from the DSL market, and in future LTE may also start to have an impact. We estimate the activities have annual revenues of around EUR 30 million, and the takeover price is likely less than half that.
Nevertheless the takeover by CDS, or better said CanalDigitaal, is understandable. Online's customer base has been eroding steadily, reaching 270,000 at the end of September (of which 261,000 using broadband), versus 288,000 a year ago. However, it has been growing in the TV market, where it resells the Digitenne DTT service and reached 55,000 customers in Q3, versus 37,000 a year ago. An important motivation for CanalDigitaal is its inability to offer triple-play plans over its own infrastructure, while triple-play has been leading what little growth there is in the Dutch market. CanalDigitaal is essentially a TV-only provider, and while it is possible to offer broadband and even interactive TV over satellite, it has not developed any of these services.
To date CanaDigitaal has focused on a resale offer, working with KPN to offer services over technologies such as ADSL, VDSL, FTTH and DVB-T. Online.nl, a reseller as well, adds to this business model. In future CanalDigitaal could also take wholesale services over fibre from Tele2 and Vodafone, if the latter two decide to open their networks. Online.nl with its 270,000 customers is an attractive first target, but over time CanalDigitaal will need to encourage the migration to FTTH.
CDS: consolidator?
On the surface, CDS Group and CanalDigitaal appear to be following the same path as BSkyB in the UK. Sky saw some years ago that it was risking missing out on the broadband market and as a result acquired a number of small ISPs. In the Netherlands, CDS/CanalDigitaal have to date not been considered likely candidates for consolidation, but this could be changing. Smaller players such as Scarlet (Belgacom) and Solcon (independent) could also be on its radar. Caiway, which KPN earlier tried to buy but missed out on due to regulatory opposition, could also be a candidate, but its cable and fibre infrastructure may be a step too far for CDS. Other options for growth are open to CDS/CanalDigitaal, such as offering broadband over satellite to target remote areas and offering its content 'over the top', over its own or other broadband infrastructure.
We'll see how CanalDigitaal's plans develop further, but for the moment it looks like Vodafone and Tele2 will have a new competitor aiming for the number two position on the Dutch market.
T-Mobile: mobile-only
For T-Mobile the sale means it now has a clear focus on LTE and mobile-only. Its sister company T-Mobile USA may serve as an example for how to move forward. After a difficult period and failed merger with AT&T, the America operator has managed to turn around its results and return to strong customer growth, driven by its own unique 'un-carrier' strategy.
Mobile-only also means fixed-line replacement services. LTE allows operators to attack the bottom end of the fixed-line market. T-Mobile Netherlands could make good use of its unpaired spectrum and launch TD-LTE services to target this market, in the end becoming a competitor itself to Online.
