future cable tv mergers in europe; liberty
Cable TV in Europe ripe for consolidation
Nicola Clark IHT Monday, April 5, 2004
iht.com
'Everything has changed' for providers
PARIS After a couple of bleak years, Europe's cable television industry appears to be slowly percolating back to life, with companies starting to make fresh investments in new products and services.
And with the big players having gone some way toward reining in their debts, some are looking to revive expansion and merger plans that were abandoned amid a global economic slowdown and contraction of the advertising market.
After painful debt restructuring since 2002, cable companies once again have the resources to upgrade their networks and promote their services, analysts say. Moreover, regulators across Europe have slowly begun to ease restrictions that have prevented cable companies from operating on a national rather than a regional level.
"Everything has changed for these companies," Aizaz Shaikh, a senior media and telecommunications analyst at BNP Paribas, said at meeting with investors in Paris last week.
Cable advocates have always pointed to the relatively small pay TV audiences in Europe as evidence of a business opportunity ready to be exploited. About 32 million households subscribed to pay TV in Europe in 2003, representing less than half of the region's television viewing population, according to Informa Media Group, a publisher of media industry newsletters.
While that figure is expected to rise at a healthy pace of 24 percent this year alone, to 39.5 million, it still represents fewer than 50 percent of households with a TV. That compares with 97 million homes in the United States, or about 90 percent of television viewers. Still, European viewership is expected to grow exponentially over the next few years, with the total number of pay TV households expected to reach more than 112 million by 2010, Informa says.
While there is clearly growth potential, much depends on the pace of deregulation of the industry, especially in the major Continental markets, France and Germany, analysts say.
Late last year, the French Senate voted to repeal a law that limited the number of viewers that any one cable operator could serve to eight million. Cable operators have wasted no time trying to take advantage of this change.
Last month, UnitedGlobalCom, a Denver-based cable company controlled by the U.S. media mogul John Malone, said that it had agreed to buy a 50.1 percent stake in France's leading cable TV operator, Noos, from the utility group Suez for as much as $800 million in cash and stock. Malone said he intended to merge Noos with his existing French cable business, UGC France, to create a company serving 1.8 million French households and with annual revenue of about E400 million, or $485 million.
In the same week, France Télécom and Canal Plus said that they would merge their cable operations - FT Cable and NC Numéricable - and form a new company. The combined entity, serving 1.7 million households, will eventually be sold to a third party, they said.
"In France, we have gone from four major cable operators to two," said Shaikh of BNP Paribas. "This allows them to acquire scale and increases their ability to negotiate content deals and gives them greater leverage with the regulators."
James Enck, a cable industry analyst at Daiwa International in London, said that consolidation in France's cable market was "inevitable" but conceded that it had come "faster than I expected."
He also wondered aloud how long it might be before UGC made a bid for the merged Canal Plus-France Télécom cable business, effectively creating a national cable carrier. In Germany, there is also movement toward the creation of a national cable carrier through mergers. The country's four biggest regional cable operators - Kabel Deutschland, Ish, KabelBW and Iesy - announced a E2.7 billion deal on Sunday that would combine their assets under one roof.
While that deal must still pass antitrust scrutiny, some analysts said that regulators might be receptive: Since cable companies are increasingly offering high-speed Internet service as an add-on to TV, a merged company could create a viable competitor to incumbent phone companies like Deutsche Telekom that are also aggressively packaging Internet with their voice services.
Ironically, the proposed German cable merger would essentially reconstitute the cable business that Deutsche Telekom sold off in pieces in 2001 to various private equity groups after regulators rejected a $5 billion bid by Malone's Liberty Media for six of the networks. Should regulators approve the merger, analysts said this could improve Liberty's chances of success in Germany if it wanted to try again at an acquisition.
"I expect Liberty to make a second attempt" to buy German cable assets that are still held by private equity companies such as Apax Partners, Providence Equity and Goldman Sachs Capital Partners, said Enck of Daiwa.
Liberty Media declined to comment about its European strategy, referring questions to UGC. UGC executives in Denver and in London were unavailable for comment.
Liberty, through its UnitedGlobalCom unit, "is a committed player in cable in Europe, though they have had a number of setbacks," Shaikh said. Besides the disappointment in Germany, Liberty last year abandoned efforts to obtain a controlling stake in the troubled British cable company Telewest and merge it with NTL - a plan that might have created a credible challenger to the dominant digital TV operator, BSkyB.
But even with financial and regulatory obstacles to consolidation falling away, Europe's cable industry faces considerable competition from the former state telephone service monopolies and satellite TV operators, which increasingly are selling a so-called triple play of telephone service, broadband Internet and television.
In contrast to the situation in the United States, "most European cable industries, with the exception of Britain and the Netherlands, were traditionally controlled by incumbent telecom carriers," said Bernt Ostergaard, a Copenhagen-based analyst at Forrester Research. That gave the phone companies an advantage from their access to users of voice and dial-up Internet services.
That situation could change rapidly. With increasing broadband adoption in Europe, cable companies seem certain to pick up at least a proportional gain in their non-TV revenue.
Today, however, the vast majority of Europeans get their broadband access via an asymmetric digital subscriber line, or ADSL, that is controlled by the phone companies.
Currently, about 8.8 million people in Europe get their high-speed Internet this way, compared with just 2.3 million over cable, according to estimates by CMA Consulting, which specializes in broadband and digital services.
About 20 percent of European households have high-speed Internet connections today. Shaikh compared the transition to the adoption of mobile phones. "I think we can expect penetration rates of 35 percent to 40 percent over the next several years," he said.
Phone companies are also starting to challenge the cable TV companies on their own turf: Deutsche Telekom, France Télécom and BT, and even Internet service providers like FastWeb in Italy, have begun to offer TV content over their networks.
"If they succeed, it could have dire consequences for the cable operators," Shaikh said.
Ostergaard of Forrester said that one way for cable companies to stay competitive in the triple-play arena might be to seek out mergers with some of the region's smaller phone companies.
"If consolidation can move the cable players closer to the triple play, then that starts to get interesting," he said.
International Herald Tribune |
