Vodafone has confirmed its long-rumoured interest in Kabel Deutschland. While no price was mentioned, KDG has a market capitalisation of EUR 6.6 billion, and a premium of 20-25 percent on that suggests a bid of at least EUR 8.5 billion would be required. KDG's share price has already shot up over the past 12 months from around EUR 40 to EUR 75, and the confirmation from Vodafone sent the price over EUR 80. According to the latest media reports, KDG has rejected a bid of EUR 81-82 from Vodafone. At the same time Vodafone's share price has fallen sharply, from around 195 pence to 180. KDG listed on the stock market in March 2010 at a price of EUR 22 per share.
Kabel Deutschland's network passes 15.3 million homes, of which 11.1 million are upgraded for two-way communication. It has a total 7.2 million customers, to which it sells an average 1.66 services each and who generate ARPU of EUR 16.05. Other cable operators (such as Ziggo and UPC in the Netherlands) are further advanced than KDG. This means the German operator still has substantial room for growth, but also that it requires significant investment.
Vodafone has made no secret of its belief in "total communications", offering a combination of fixed and mobile services rather than just focusing on its main market mobile. It already generates a substantial part of its revenues from the contracting DSL market, but has been less successful with its hybrid TV offering (a combination of satellite and IPTV).
In each country where it operators Vodafone first looks at how attractive the wholesale offering from the incumbent operator is (price, SLAs, etc). If it falls short, it has a few other possibilities for realising its strategy:
- Exiting the market.
- Seeking access to cable networks (as Mobistar is doing in Belgium).
- Deploying its own infrastructure (although its own access network is usually a step too far).
- Acquisitions (as it has done in countries such as the UK and Netherlands).
- Positioning LTE as a fixed-line replacement.
The issue is less important from KDG's perspective. A deal with Vodafone allows it to add mobile services to its offering, with a nationwide network. It would become active outside its current footprint and start competing with Liberty Global, which owns the other major German cable operators Unitymedia and KBW. Using over-the-top services, such as a live TV app and VoIP app, it can even roll out its services nationwide, apart from the broadband access. For the latter, Vodafone's VDSL deal could provide a solution.
If successful, the deal could have further implications on the market:
- Would E-Plus (currently mobile-only) feel the pressure to enter the fixed market? Its sister company Base in Belgium recently did so, introducing the triple-play offering Snow over the Belgacom network.
- Might Telefonica Deutschland finds its infrastructure a bit lacking in order to participate fully in the move towards convergence?
- How will Liberty Global offer mobile services in Germany? It may very likely be interested in E-Plus.
- What will Vodafone do in other countries? Reports have already started to speculate that Fastweb, the Italian subsidiary of Swisscom, could be Vodafone's next target.
