British telecom giant Vodafone is taking a different approach to pay TV, reversing a trend by wireline providers to move their wares to wireless, by acquiring Germany's largest wireline pay TV company, Kabel Deutschland, and blending its operations into Vodafone's wireless business. Vodafone has tendered €7.7 billion ($10.11 billion) for the company that passes 15.3 million homes and will potentially help Vodafone's existing IPTV business via Deutschland Telekom.
"Kabel Deutschland provides Vodafone with an attractive platform for TV and fixed broadband in Germany and creates a leading integrated operator with pro forma revenues of approximately €11.5 billion ($15.10 billion)," the telecom giant said in a press release. "Leveraging Kabel Deutschland's high-speed broadband and TV capabilities will provide Vodafone with the ability to offer premium unified communications services to consumers and businesses in Germany."
Vodafone will, the press release continued, also offer fixed broadband via DSL or VDSL in areas outside the Kabel Deutschland footprint. Mostly, though, the deal is about merging Vodafone's potent wireless business with Kabel Deutschland's fixed wires.
"Vodafone's mobile business will benefit from Kabel Deutschland's network, which will provide transmission capacity for Vodafone's base stations at considerably lower cost than prevailing market rates for least capacity," the Vodafone press release noted. "There is also scope for savings by combining overlapping regional and national backbones."
All of which makes sense, according to an Ovum analysis, which noted that the "deal demonstrates the pragmatism of Vodafone."
It's not as if Vodafone is a wireline newcomer.
"In Germany, Vodafone has not only launched LTE … it has also started providing IPTV services, making use of Deutsche Telekom's fixed line backbone," Ronald Klingebiel, assistant professor of strategy at Warwick Business School told Billing World.
Previously viewed as only a mobile-first player, "its quest for survival in Europe means it is prepared to jettison its ideological purity" and acquire a broadband wireline business after concluding its "domestic European market is sickly and requires a good dose of medicine to jolt it back to life."
It could, the analysis continued, also be a signal that Vodafone is ready to move more aggressively in the burgeoning European market.
"The implication is that if Vodafone becomes Germany's largest pay-TV provider, why would it not want to do the same in the UK, Spain, Italy or Netherlands?" the Ovum analysts asked.
One reason might be Liberty Global (Nasdaq: LBTYA), which has its own aims on expanding on the continent. It recently acquired Virgin Media and had put in its own slightly lower bid for Kabel Deutschland. Liberty, like Vodafone, is always eager to expand its portfolio of companies.
"We're looking to build great products for our customers and being a great business for investors to invest in," Balan Nair, Liberty CTO told FierceCable recently. "My boss, [President and CEO] Mike Fries, will tell you we're not about building empires; we're not about trying to make ourselves bigger than the next guy. We do believe in scale and we do believe scale benefits our investors and we do believe scale enables us to be more innovative to deploy great products, but that is very different than trying to just grow and conquer and all that. We don't even discuss that."
At this stage and with Kabel Deutschland, that appears to be the successful strategy being followed by Vodafone which, sees "significant potential to accelerate the growth in Vodafone's and Kabel Deutschland's broadband, telephony and TV businesses by leveraging Vodafone's leading brand and extensive distribution and by cross-selling to each company's customer base."
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