A host of reasons lie behind Vodafone’s desire to acquire cableco Kabel Deutschland, telecoms analysts believe.
As we reported this morning, Vodafone is set to get the go ahead for the deal after KD’s management and board gave their approval.
Vodafone said it wanted to cross-sell to each company’s customer base and offer a premium unified communications services to consumers and businesses in Germany.
Ovum’s Emeka Obiodu said the deal, Vodafone’s largest acquisition since 2007, is confirmation that Vodafone’s domestic European market is “sickly” and requires “a good dose of medicine to jolt it back to life”.
In May, Vodafone recorded its first fall in annual revenues since 2005 and a 90 percent fall in profits as it battles tough economic conditions in southern Europe.
Ovum expects mobile telecoms revenues in Germany to fall by a compound annual growth rate of just one percent between 2013 and 2018, while the country’s cable broadband market will grow by a CAGR of four percent over the same period.
“Whereas Vodafone was regarded as a mobile telecoms company in the past, its quest for survival in Europe means it is prepared to jettison its ideological purity,” said Obiodu.
CCS Insight’s Kester Mann, meanwhile, said the deal is both defensive and offensive.
“Not only will it allow Vodafone to offer cable and TV services to mobile customers in its biggest European market, but it will also help defend its position from the ambitions of Liberty Global, Deutsche Telekom and Kabel Deutschland itself,” he said.
Specifically, the move reflects the severity of the threat from cable providers offering faster and lower-cost services, according to Mann.
“Vodafone’s ambition represents part of a wider group strategy to focus more on offering triple and quadruple play services. This is particularly important given its limited fixed-line position in Europe,” he added.
Warwick Business School Assistant Professor of Strategy, Ronald Klingebiel, said Vodafone’s IPTV services make use of Deutsche Telekom’s fixed line backbone, which is “running at capacity”.
“DT is struggling to upgrade its network with vectoring technology, something that will increase its control over competitive data traffic. This may have convinced the Vodafone leadership to buy into Kabel Deutschland.”
The deal has wider implications for the future, the analysts believe.
“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? Watch this space,” warned Obiodu.
For Mann, however, the deal could hasten Vodafone’s desire to sell its stake in Verizon Wireless.
“Should Vodafone receive a satisfactory offer for its stake in Verizon Wireless, it should seriously consider exiting the US market,” he said.
“Such a move would release funds for greater investment in fixed-line infrastructure that would support its strategy for converged services and help it shore up its under-performing European networks.”