Market Insight

Slovak Telekom to buy Digi Slovakia

May 22, 2013

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Slovak Telekom has acquired satellite and cable TV platform Digi Slovakia from RCS&RDS. The value of the deal, which has yet to be approved by the Slovak Competition Office, was not disclosed.

The acquisition represents a further move into pay TV by Slovak Telecom, owned by Deutsche Telekom. It operates an IPTV service called Magio TV along with a satellite TV platform, MagioSat. At the end of the first quarter of 2013 Slovak Telekom reported a total of 180,000 TV subscribers.

The sale by Romania's RCS&RDS is part of a plan to focus on its core markets. In March, the Romanian company sold its Croatian satellite TV platform to Austria Telekom.

According to IHS Screen Digest, the number of RCS&RDS subscribers in both Croatia and Slovakia has been decreasing during last two years and it is the case also with Digi TV in Czech Republic and in Serbia. In fact, the company is experiencing increasing churn on all its satellite platforms, although at the same time it has been doing very well on cable in Hungary and Romania.

RCS&RDS has to strengthen its position in Romania, which is its largest market. Currently, Romania is near to saturation both as to multichannel TV (just under 90 per cent of homes) and pay TV (penetration over 80 per cent). The operator's major competitors on the market are OTE-owned Romtelecom and UPC. The number of competitors will soon grow as mobile operator Orange is planning to launch a satellite platform with a planned offer of around 30 HD channels. A DTT platform could also launch in Romania by the end of 2013, creating an attractive alternative in the still price-driven Romanian pay TV market.

According to local sources, RCS&RDS is now trying to raise €800m in funding in order to cover its current debt (in 2011 the company took a €300m loan from BCR, Credit Suisse and CEC Bank) and also for the future investments.

Considering the situation on the Romanian market, RCS&RDS could bid to take over UPC, which for many past quarters has been dropping subscribers on cable, who have been migrating primarily to RCS&RDS. As the sale of the Croatian and Slovak operations may not be sufficient to cover all the expenses, apart from selling its other operations in Europe, RCS&RDS may also try an IPO (an earlier attempt in 2009, was postponed by the economic crisis).

With analogue switch-off completed by Slovakia in 2012 and pay TV penetration reaching about 60 per cent of homes, there is still potential for growth for pay TV. With the acquisition of Digi TV, Slovak Telekom will considerably strengthen its market position, eliminating one of its major competitors. It will still face two big operators: UPC, also owing cable and satellite platforms, and satellite TV operator SkyLink. Another competitor, recently launched pay DTT platform Plustelka, owned by transmission company, Towercom, will put additional pressure on the incumbent telco, especially that a vast majority of free-to-air homes watch DTT (the platform's penetration at the end of 2012 stood at about 30 per cent of Slovak homes).

It remains uncertain in what way Slovak Telekom will integrate the acquired cable TV network with its IPTV service.  It is possible that, at least for some time, the operator will provide a mixed offer in the areas covered by Digi's network (similarl to Rio Media in the Czech Republic), however, it is more likely that Digi's cable TV subscribers will be moved onto the IPTV network (similar to DT-owned T-Home in Hungary which is gradually migrating its cable TV subscribers to IPTV).

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