How Vodafone just became Europe’s gigabit broadband giant

9 May 20181.8k Views

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Vodafone building in Bucharest, Romania. Image: Radu Bercan/Shutterstock

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Vodafone’s acquisition of Liberty Global’s assets will add 54m cable and fibre homes to the former’s vast European network.

Vodafone has agreed a deal with John Malone’s Liberty Global to pay $21.8bn (€18.4bn) to buy Liberty’s assets in Germany, the Czech Republic, Hungary and Romania.

The move will strengthen Vodafone’s hand in the growing market for superfast broadband and will add 54m homes in Europe to the company’s cable and fibre network.

Vodafone said it will finance the transaction through cash, debt and €3bn worth of convertible bonds.

Why is Vodafone doing this?

Fibre to the home (FTTH) combined with 5G capabilities will separate the wheat from the chaff in the next chapter of European telecoms.

Vodafone has been flirting around a deal to acquire Liberty’s global assets for some time now but talks have been ongoing for years – that is, until now.

“This transaction will create the first truly converged pan-European champion of competition,” said Vodafone CEO Vittorio Colao.

“It represents a step change in Europe’s transition to a gigabit society and a transformative combination for Vodafone that will generate significant value for shareholders. We are committed to accelerating and deepening investment in next-generation mobile and fixed networks, building on Vodafone’s track record of ensuring that customers benefit from the choice of a strong and sustainable challenger to dominant incumbent operators. Vodafone will become Europe’s leading next-generation network owner, serving the largest number of mobile customers and households across the EU.”

Stirring stuff, but what will some of the incumbent operators have to say about this?

Quite a lot actually. The transaction is subject to regulatory approval and is expected to be completed by mid-2019, but there’s many a slip between cup and lip.

The deal may be challenged in the EU by German giant Deutsche Telekom, which has been hostile to such a deal for as long as rumours of a Vodafone-Liberty tie-up had been mooted.

This is because, as Vodafone points out, the combined operation will create a converged national challenger to the dominant incumbent in Germany, Deutsche Telekom, and aims to support 25m homes and businesses with 1Gbps or gigabit broadband services within four years.

Not only that but in the Czech Republic, Hungary and Romania, the combined businesses will reach more than 6.4m homes (39pc of total households) and will serve 15.8m mobile, 1.8m broadband and 2.1m TV customers.

If Vodafone prevails, which is most likely, what is the prize?

Massive. Post-acquisition, fixed-line broadband and TV services will represent 35pc of Vodafone’s revenues.

The company expects capital expenditure synergies to the tune of €535m per annum within five years of the deal closing. That’s €6bn after integration costs.

The deal is one of the biggest in European telecoms history and follows a similar move in Spain where Vodafone acquired cable operator ONO, as well as Kabel Deutschland in Germany.

Vodafone will be able to save a ton of money through network integration, IT/billing simplification, procurement and consolidation. Further savings will also be gained in Germany from the migration of Vodafone’s existing overlapping fixed-line DSL customer base to the Unitymedia cable network.

Vodafone said it estimates that upside potential from revenue synergies is equivalent to a net present value of more than €1.5bn.

What will the European punters make of it?

Who cares as long as they get the speeds they want?

The combined entity will achieve two-thirds of the German government’s 2025 ambition for gigabit connectivity across the country three years ahead of schedule.

Vodafone stated: “With 30.8m mobile customers, 10m broadband connections (of which 7m are ‘on-net’) and 14m TV households post-transaction, generating €13bn of pro-forma revenues in the 2017 calendar year (of which 49pc are driven by fixed line/TV services), the combined company will be well placed to ensure that German consumers and businesses benefit from sustainable and effective competition, and choice in digital infrastructure and converged services.”

What about Virgin Media in Ireland and the UK?

They are not part of the deal. Liberty Global will continue to own the Virgin Media network in Britain and Ireland.

But who knows? Liberty Global owns 50pc of a joint venture with Vodafone in the Netherlands called VodafoneZiggo, which has 4m customers, and this is separate from today’s (9 May) deal.

Liberty Global, which is headquartered in Denver, will still have operations in Ireland, the UK, Belgium, Poland, Switzerland and Slovakia as well as in Latin America and the Caribbean.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com