Gigabit age

Vodafone acquisition of Unitymedia may spur German broadband

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Stronger together? Source: Reuters

Vodafone’s long-expected acquisition of Liberty Global telecom assets in four countries reshapes the competitive landscape in Europe – and has sparked immediate criticism from its biggest rival in Europe’s largest economy.

The €18.4 billion ($21.8 billion) deal includes Unitymedia in Germany, which critics say will give the British company a dominant position in cable TV and a competitive advantage in broadband.

In Germany, Deutsche Telekom was quick to criticize the deal. “I personally will fight to ensure that we do everything we can to ensure fair competition for our customers,” Telekom Chief Executive Timotheus Höttges said on Wednesday, “so that we are not disadvantaged and can fight with the same weapons.”

There’s no small amount of irony in the German giant, a former state-owned monopolist, complaining about the anti-competitive impact of mega-mergers. Telekom itself is in the midst of antitrust scrutiny for the takeover of Sprint by its T-Mobile unit in the United States. Critics say it has also abused its own position in its home market.

“For the first time we are really in a position to enter the gigabit age.”

Johannes Ametsreiter, head of Vodafone Germany

The deal, which is expected to close next year, must get approval of antitrust authorities. Because of its cross-border scope, that review will almost certainly take place at the European level in Brussels rather than in the individual countries. The acquisition also includes units in Czech Republic, Hungary and Romania.

Mr. Höttges referred to the requirement that Telekom make its infrastructure accessible to competitors, whereas neither Vodafone nor Unitymedia are required to do so. This may indeed be demanded of Vodafone, too, in future. But beyond that, Telekom may struggle to make the case that it deserves special treatment. Achim Wambach, head of Germany’s Monopoly Commission, said the merger “will have a positive impact on the expansion of broadband.”

Despite its industrial prowess, Germany has one of the lowest-performing broadband networks in Europe, and many blame Telekom for abusing its dominant position and dragging its feet in making the investments in a broadband infrastructure.

“For the first time we are really in a position to enter the gigabit age,” Johannes Ametsreiter, head of Vodafone’s German operations, said in an interview with Handelsblatt. “Together with Unitymedia, we reach two thirds of all households in the country and will soon be able to supply them all with gigabit speed.” Unitymedia already offers more robust internet connections through its TV cable network, Mr. Ametsreiter said, and pledged that Vodafone will quickly build up a fiber optic network as well as install new technologies for even faster internet.

Vodafone has considerable political backing for the Unitymedia acquisition. “This would be a major leap forward for broadband coverage and digital innovation and would give a strong boost to competition,” said Joachim Pfeiffer, economic policy expert for Chancellor Angela Merkel’s conservative alliance in parliament. German Transport Minister Andreas Scheuer in an interview said TV cable providers have an important role to play in expanding broadband internet access across Germany.

Vodafone CEO Vittorio Colao countered critics who claim the acquisition creates a monopoly giant in Europe. On the contrary, he said, the deal offers customers throughout Europe more choices and creates a “champion” to keep Europe competitive.

There is little overlap in the coverage of Vodafone and Unitymedia. The Liberty unit is active in North Rhine-Westphalia, Hesse and Baden-Württemberg – precisely the three states missing from the Vodafone network. Up until now, Vodafone could offer internet services in those states only by renting connections from Telekom. The combination is like two regional newspapers, said Justus Haucap, a competition expert. “I don’t believe any anti-competitive effects will surface,” he said.

Vodafone and Unitymedia together have 7 million broadband customers and 14 million television customers, according to the companies. Telekom has 13.2 million broadband connections and 3.1 million TV customers. Some 19.2 million have landline telephone from Telekom.

Their existing infrastructures offer the Telekom competitors ample room for growth. Vodafone has 6.5 million customers but its network reaches 12.7 million households. Likewise, Unitymedia has 7.2 million customers but reaches 13 million households.

Telekom’s Mr. Höttges, however, charges that precisely this situation creates little incentive for the merged company to invest in expensive fiber optic, while adding to the pressure on Telekom to upgrade its less robust network.

Telekom may get its way in one respect. The Federal Network Agency said last week it may require cable TV operators to provide network access to third parties in areas where they have a dominant position. But that, too, could boomerang against the former monopolist, if smaller providers who currently rent lines from Telekom find Vodafone’s terms a better deal.

Ina Karabasz covers telecommunications, IT and security for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: karabasz@handelsblatt.com.

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