Market Insight

Vodafone confirms interest in cable operator KDG


German cable operator Kabel Deutschland (KDG) has confirmed that telecoms group Vodafone has expressed interest in its acquisition. Kabel Deutschland is the biggest of the three major Level 3 cable operators in Germany with 8.5m connected households. The other two biggest level 3 operators, Unity Media and Kabel Baden Wurttemberg, have already been bought by Liberty Global. At the end of December 2012, KDG had 8.1m TV subscribers, 1.74m broadband customers and 1.75m cable telephony subscribers. In the fiscal year 2011/2012 the company reported total revenues of €1,700m and an adjusted EBITDA of €795m. 

The speculation regarding KDG's takeover by Vodafone has been ongoing for months. Vodafone could attempt to enter via KDG into the German cable TV market and complement its mobile offering with KDG triple play services. This move would not give Vodafone access to the whole German market as KDG does not operate nationwide, although it serves 13 of the 16 German federal states with 15.6m homes passed. Vodafone has recently expanded its fixed activities in Germany through an agreement with Deutsche Telekom, which has allowed Vodafone to offer more comprehensive IPTV services to its customers. 

There has been significant consolidation recently in the German cable sector, with Liberty Global buying the other two largest cable operators in the country, Kabel Baden-Württemberg and Unity Media (collectively serving 7m homes). Liberty could be the other obvious bidder for KDG since its acquisition would give Liberty Global control of almost all of the German cable market. It is not clear, however, that the German regulators and anti-trust authorities would allow Liberty to take control of such a large share of the pay TV market. Since it acquired Unity and KBW , Liberty has been attempting to show the German regulators how a consolidation would benefit the cable sector and German consumers, as well as and indicating that competition is already coming from other platforms such as satellite, IPTV, DTT and online video.

The German cable market is unique in Europe. The establishment of cable dates back to 1982, when the Deutsche Bundespost started to supply Germany with almost nationwide broadband cable. The cable network was divided into four levels. Network Levels 1 and 2 transported signals from broadcasters to regional distribution networks. Network Level 3 connected with the transfer points outside the subscriber's home and Network Level 4 represented the last mile. Only Level 4 networks have a direct relationship with the end consumer. Last year, KDG tried to adquired Telecolumbus , the largest Level 4 operator in the country, but the deal was not approved by the Cartel Office. 

This announcement by KDG regarding Vodafone's interest could potentially accelerate an offer by Liberty Global -  the reaction from the Cartel Office would represent one of the major concerns precluding such a move.