Unitymedia Eyes German Mobile Stores Amid O2, E-Plus Merger

Apr 04, 2014 8:39 am ET

(Updates with Moody’s comment in 12th paragraph.)

April 4 (Bloomberg) -- Cable billionaire John Malone, mounting a challenge against Vodafone Group Plc, would consider acquiring wireless customers and stores in Germany that may be put up for sale pending a review of a merger of the country’s third- and fourth-biggest network operators.

Telefonica SA and Royal KPN NV are seeking the European Commission’s approval of the 8.55 billion-euro ($11.7 billion) combination of their German units to create the nation’s largest mobile-phone company by customers. Concession proposals to allay regulators’ concern that a merger of their O2 and E-Plus businesses would harm competition are due April 16, people familiar with the matter said this week.

“We will always look at such options when they come on the market,” Unitymedia KabelBW, Germany’s second-largest cable provider and a unit of Malone’s Liberty Global Plc, said in a response to questions from Bloomberg News. It’s too early to make any commitments at this point, it said.

Over the past three years, Unitymedia built a network of almost 300 stores in western and southwest Germany selling broadband Internet, phone and pay-TV packages. It has also introduced mobile-phone services using Telefonica Deutschland Holding AG’s network, although with about 240,000 customers and sales of 14.8 million euros last year, that business remains an upstart.

Roaming Fees

O2 and E-Plus together had more than 44 million wireless clients at the end of 2013, surpassing Vodafone and Deutsche Telekom AG, according to data compiled by Bloomberg.

European carriers are merging after years of declining revenue as wireless competition intensified and regulators slashed interconnection fees. The European Parliament yesterday approved plans to abolish roaming fees for people traveling to other countries in the region, a move that will further hurt sales.

In France, Vivendi SA’s supervisory board is meeting today as it tries to decide on the sale of its French phone unit SFR, the subject of a bidding war between cable tycoon Patrick Drahi’s Altice SA and Bouygues SA.

KPN advanced 0.8 percent to 2.55 euros at 2:14 p.m. in Amsterdam. Telefonica Deutschland added 0.3 percent at 5.78 euros, while its parent was little changed in Madrid trading. Liberty Global closed at $41.60 in New York yesterday.

MVNO Push

Liberty Global, based in London, is planning to build across Europe a mobile virtual network operator system, a term for companies that lease network carriers’ infrastructure to sell their own mobile services.

United Internet AG, another German broadband provider under the 1&1 brand, told the commission that Telefonica should be required to provide access to such MVNOs at cost price, Chief Executive Officer Ralph Dommermuth said last week.

Telefonica Deutschland and E-Plus already face demands from authorities. The joint company must give up wireless frequencies in the 900 megahertz- and 1,800 MHz ranges should the merger win approval, Germany’s Federal Network Agency said in a position paper this week.

Ivan Palacios, an analyst at Moody’s Investors Service, said spectrum disposal and allowing MVNO access to their networks would be the most logical remedies.

“If the deal fails KPN could still try and sell E-Plus to another player, like private equity,” Palacois said by phone. “In that case it wouldn’t deliver as much as the deal with Telefonica, because this deal is based on synergies.”

New Deadline

Telefonica and KPN have projected potential cost savings and additional revenue valued at as much as 5.5 billion euros.

The European Commission has pushed back a deadline for its final ruling on the transaction by two weeks to May 28.

Giving up some customers have helped deals go through in the past. Hutchison Whampoa Ltd.’s Austrian Drei unit, in an effort to win regulatory approval for its agreement to buy Orange Austria, sold customers of Orange’s Yesss! discount brand to market leader Telekom Austria AG.

Liberty Global last year lost out to Vodafone in its bid to acquire Kabel Deutschland, Germany’s largest cable provider, to expand coverage across the country. Apart from mobile, Malone’s company is seeking growth from landline Internet and phone connections.

--With assistance from Elco van Groningen in Amsterdam.