Germany's largest cable operator will help Vodafone expand from its core cellphone business to establish a "quad-play" future.

Gary Flood, Contributor

June 25, 2013

2 Min Read

London-headquartered Vodafone will expand its European multi-play coverage by buying Kabel Deutschland, Germany's largest cable operator.

The £6.5 billion ($10 billion) acquisition means the firm will have access to 5 million broadband and 7.6 million on-demand TV customers in the federal republic.

Its swoop -- the firm's biggest move since a 2007 entry into the Indian market -- will make Vodafone the largest pay-TV provider in Germany and the second largest fixed broadband provider. Vodafone is already the second largest mobile telco in that market, with 32.4 million customers. Overall, analysts reckon it is the world's second-largest mobile operator.

"German consumer and business demand for fast broadband and data services continues to grow substantially, as customers increasingly access TV, fixed and mobile broadband services from multiple devices," said Vodafone chief executive Vittorio Colao. "The combination of Vodafone Germany and Kabel Deutschland will greatly enhance our offerings in response to those needs."

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Vodafone may have been pressed into a quicker acquisition than originally planned when rival Liberty Global announced it, too, was interested in buying Kabel Deutschland. It is possible the U.S. firm may make a counter-offer, but markets seem to rank this as a low probability, given antitrust and competition reviews that might follow.

Vodafone is following a vision of offering bundled TV, broadband and fixed-line calls down one pipe associated with a mobile contract -- the so-called "quad-play," which is increasingly attractive to Europeans.

The problem is that even a proposition like that is no guarantee of rich returns in a sluggish European environment. Thus for Emeka Obiodu, principal analyst in U.K.-headquartered research group Ovum's Industry, Communications & Broadband practice, the deal is confirmation that Vodafone's domestic European market is "sickly" and "requires a good dose of medicine to jolt it back to life."

Obiodu also believes the precarious situation of Europe's telcos follows mostly from their exposure to mobile, where the market is now saturated and prices have been on a steady downward trend. His outfit expects mobile telecom revenues in Germany to fall by a compound annual growth rate of 1% between 2013 and 2018, for example.

However, by adding Kabel Deutschland's fixed broadband and pay-TV customers, Vodafone's ambition to tap into other sources of revenue in the market may offer a better route of travel. Ovum expects revenue from the cable broadband market in Germany to grow by a compound annual growth rate of 4% between 2013 and 2018.

Overall, Obiodu sees Vodafone's move as an example of "pragmatism," exhibiting a willingness to evolve beyond its mobile roots. "The implication is that if Vodafone becomes Germany's largest pay-TV provider, why would it not want to do the same in the U.K., Spain, Italy or Netherlands? Watch this space," he added.

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