Market Watch

Comhem Snaps Up Telenor's Cable Assets


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Telenor has agreed to sell its Swedish Canal Digital cable and IPTV operations to cable giant Com Hem for Skr85m (€9.26m). As part of the acquisition, Com Hem will receive approximately 220,000 RGUs (Revenue Generating Units) - of which 22,000 are IPTV subscribers. The IPTV subscribers and assets will then be resold to telco AllTele in an all-cash deal worth Skr11m (€1.15m).

Canal Digital says, it will continue to concentrate on its Nordic satellite pay TV operations, and refused to comment on rumours that the satellite business may also be up for sale.

AllTele--hitherto a relatively small player in the ISP and IPTV space--stands to become the third largest IPTV operator in Sweden following the acquisition. It currently provides IPTV and broadband services via partner networks, mobile telephony services via an MVNO utilizing Telia's network, and mobile broadband and fixed telephony services. Acquisition of Canal Digital IPTV assets will allow the group to extend its triple-play reach.

Both deals are to be reviewed by the nation's competition authority as private equity-owned Com Hem is already Sweden's largest cable operator, controlling just under 75 per cent of cable TV homes and 43 per cent of the pay TV market. Post acquisition, Com Hem's share of the cable TV business would increase to around 82 per cent, while its share of the overall pay TV market would be 47 per cent. AllTele has a get-out clause should the deal not complete by end 2011.

Analysis
We expected the sale of Sweden's Canal Digital cable assets after Telenor sold its Danish cable business to Stofa earlier this year, but the valuation comes as a surprise. Com Hem has paid just €42 per RGU. After deducting the cash paid by AllTele for the 22,000 IPTV homes (Skr11m; €500 per RGU), the RGU value for Canal Digital's cable subscribers is just €39, making this the lowest cable valuation seen in Europe in the last decade.

Recent European cable transactions have averaged over €200 per RGU. Canal Digital's sale of its Danish cable business to Stofa was priced at €240 per RGU, while Stofa itself was aacquired a few months prior at €399 per RGU. In Sweden, Com Hem paid €896 per RGU when it aacquiredUPC Sweden's assets, although this deal occurred during a period of economic boom (2006).

There are a number of reasons why Canal Digital has sold its Swedish assets at such a low price. At end 2010, just one per cent of its customers took broadband services, while its digital TV base stood at just under 15 per cent of TV subscribers. This compared to Com Hem's 35 digital uptake and Tele2's 90 per cent. Thirty one per cent of Com Hem's and 15 per cent of Tele2's subscriber base take broadband. Further, Canal Digital has no telephony services. 

Canal Digital also owns little in terms of cable infrastructure, choosing mostly to rent out capacity from housing associations (to which it supplies TV services) and other third parties. Sources at Com Hem also noted that the infrastructure it does own will require significant investment in order to roll-out triple play services.

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