Analysis: Telekom Austria acquisition continues consolidation trend

 

Expanding its empire in the CEE countries, Telekom Austria (TA), announced last week that it is to buy Croatia’s biggest cable company B.net for €93 million through its Croatian mobile subsidiary Vipnet, writes Priscilla Awde. Financed from existing cash flow, this is one of the biggest regional cable acquisitions this year.

“The planned takeover of the Croatian cable TV market leader represents a value-enhancing acquisition. B.net will make a positive contribution to the Group’s cash flow starting from 2012”, commented Hans Tschuden, TA’s CFO. In 2010, B.net reported revenues of €28.3 million and EBITDA of €8.2 million.

The deal comes soon after TA failed to buy Serbia’s incumbent telco and, in a bid to become a quad play provider, follows the merger of its Austrian fixed and mobile sides plus the acquisition of two fibre operators in Bulgaria.

Started as the first private mobile operator in Croatia, Vipnet is the country’s second largest mobile telco (42% market share), a leader in broadband services and will become the only domestic player to offer one bill for converged services. TA is betting that adding fixed broadband and Pay-TV to its existing mobile portfolio will make it a market leader.

Buying B.net has the added advantage of being able to offload Vipnet’s wireless data traffic onto the cable infrastructure.

“As a quad play provider Vipnet will be in a much stronger position to compete against the incumbent on all levels,” suggests Cesar Bachelet, senior analyst, Analysys-Mason. “There is considerable scope for growth in fixed broadband and Pay-TV where penetration is just over 30%. Croatian mobile penetration is 140% so there is no growth and revenue was dropping faster than in Austria - TA had to do something to grow in the country.”

Since it started in 2007 B.net has become Croatia’s biggest cable operator and with 18% coverage, its DOCSIS 3 cable network passes 226,000 homes – of which around 199,000 are connected – and supports speeds up to 32Mbps with a potential 400Mbps.

Focussing on providing Pay-TV, fixed voice, television and internet services to residential customers, B.net has 22% of Croatia’s Pay-TV market and is the second largest provider. At the end of last year B.net acquired the Total TV DTH platform, rebranded B.net Total TV, and declared itself the first fully profitable altnet.

Competing against Deutsche Telekom subsidiary and incumbent T-Hrvatski Telekom, which has the biggest market Pay-TV share, B.net has seven percent of fixed broadband and three percent of fixed voice services.

Data traffic in Croatia has doubled in the last several years – a trend TA expects to continue – and, when combined with demand for Pay-TV, is expected to drive convergent services. TA anticipates combined Pay-TV and broadband fixed internet products will grow at a CAGR of 10.8% by 2019 when fixed broadband penetration will be 73% (up from 54% in 2010). Television penetration is expected to rise from last year’s 37% to 60% in 2019. According to Analysys-Mason, fixed and mobile telecoms service revenues in Croatia amounted to €1.6 billion in 2010.

“There is still a lot of fragmentation in CEE countries but the numerous small players are being acquired by larger operators. We are starting to see regional consolidation to share best practices and get economies of scale,” concludes Bachelet.

 

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