Vodafone’s Kabel Deutschland buy would remove DT’s leverage

By Francesco Radicati

In the eternal chess match that is the German telecoms market, Vodafone may be readying a move to take its king out of check, by buying cable player Kabel Deutschland (KDG). If press reports are accurate, and Vodafone really does buy up Germany’s largest cable provider, it could break out of the fixed-broadband stalemate it finds itself in currently while jumping far ahead of incumbent Deutsche Telekom in the increasingly important TV market.

Over-excited chess metaphors aside, entering the cable sphere could prove to be a panacea for Vodafone. The operator has long complained about the line rental it has to pay to Deutsche Telekom, and has raised the possibility of transferring all of its DSL customers to LTE; KDG’s cable infrastructure would give Vodafone access to around 8.5 million unique subscribers (for TV and voice as well as broadband), and the possibility of attracting more of the 15 million homes that KDG’s infrastructure passes. Even better, Vodafone would gain access to the apartment blocks and housing associations with which KDG has signed exclusive deals, effectively giving it a captive audience.

The purchase would also serve as a pre-emptive move against Deutsche Telekom’s next-generation broadband plans; Vodafone currently provides around 3.3 million customers with DSL services via unbundled local loop, which would be blocked if the incumbent gets its way to use vectoring technology to increase the bandwidth of its VDSL services (or at least severely curtailed, going by Deutsche Telekom’s concessions to competitors). Buying up a ready-made cable infrastructure protects Vodafone against such moves, and gives it a faster broadband offering that it can sell at more aggressive prices.

Moreover, this doesn’t take into account the implications of expanding its TV footprint. In terms of subscribers Vodafone’s current IPTV offering lags behind Deutsche Telekom’s Entertain IPTV offering, which itself takes only a small share of the market compared to the cable players – but buying KDG would make it Germany’s largest TV provider in one fell swoop. It also has the neat perk of cutting off further expansion by Liberty Global, which already owns Unity Media and Kabel Baden-Württemberg and has itself been linked with the purchase of KDG.

The ability to offer multiple services, particularly TV services in the living room or, increasingly, on mobile devices, will become ever more crucial to operators’ ability to attract and retain customers. Buying up KDG would take Vodafone from a niche fixed player to allowing it to compete with Deutsche Telekom on almost equal terms in just about every area.