Re: European MSO and Telco - Deutsche Telekom Stats(Everything!)
Thread- A very interesting article for those interested in MSO equipment suppliers. I keep making the case, that the US cableco market is only 1/3rd of the total marketplace. So there is a lot of room for growth outside the US. How much? I don't know because I still don't have a handle on it's upgrade to HFC status. -MikeM(From Florida)
PS I'm going to dig for and post the url for this article because it has a LOT of stats in chart form that will not cut and paste nicely. Hopefully the url last for a very long time.
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The Great German Cable TV Sale
Under pressure from the EC to relinquish its dominance of the local loop, Deutsche Telekom has opted to sell off stakes in its cable TV networks. But who stands to gain?
Graham Wilde-- Deutsche Telekom is in the process of selling off majority stakes in its nine regional German cable TV businesses to outside investors. The move came after a drawn out battle with the European Commission (EC), which objected to the German carrier's dominant position in access infrastructure in Germany. Rather than face an EC enquiry into its position, Telekom - after dragging its feet for over a year - has finally begun selling stakes in its networks.
As a prelude to the sales (and as an attempt to stem losses from its cable TV business) Telekom established Kabel Deutschland GmbH as the controlling vehicle for its cable TV network business in Germany at the start of 1999. Another company, MediaServices GmbH, or MSG, was set up at the same time as a CATV- related technology research company.
In March this year, Deutsche Telekom announced that it had concluded a deal to sell 55 per cent of its CATV busineses in North Rhine-Westphalia to the US-based communications investment firm Callahan Associates. The following month the German telecoms giant announced it would sell 65 per cent of its network in Hesse to the London-based group Klesch & Company. A month later, Callahan was in the frame again, snapping up 55 per cent of Telekom's Baden Wurttemberg network.
Deals have still to be concluded for the remaining six networks, but it is believed that Deutsche Telekom is in negotiation with Dutch-based UPC for Rhineland-Palatinate, and with a DB Investor-led consortium for three other regions including Hamburg/Mecklenburg-Vorpommern/Schleswig-Holstein, Lower-Saxony/Bremen and Bavaria.
Secrecy and uncertainty
Although the sales of majority stakes in the networks is designed to slacken Deutsche Telekom's grip over the German local loop, the secrecy with which they have been conducted - particularly concerning the price and detailed terms and conditions of the deal - appear to have raised some concern in Germany.
Deutsche Telekom clearly does not want to set any precedents for negotiations that are still taking place, so it has not released the price of any of the deals. However, industry observers estimate that the first deal with Callahan for North Rhine-Westphalia valued the entire network, which has 4.2 million subscribers, at around E3.5 bn, or around E830 per subscriber.
More uncertainty surrounds the terms of the deal which relate to the 'd-box' - the set-top box used to receive digital television. In February this year Deutsche Telekom took a controlling stake in Beta Research, the technology company that develops software for the d-box. The remaining 49 per cent of Beta Technology remains in the hands of the Kirch Group, Germany's largest independent commercial TV group, and a supplier of digital TV services.
With a share in both the cable networks and a partisan technology company, there are fears that Deutsche Telekom could force buyers of its networks down a technology and programming road on which they may not wish to travel. If there is a problem, it is likely to become more acute when buyers begin upgrading networks (at en estimated cost of E200 to E400 per household) to carry interactive services, telephony and internet access. It is not clear whether Callahan, Klesch et al will be forced to use the next-generation 'd-box', which will have internet access, or whether they will have a free hand in choosing new set-top box technology and services.
Lack of CATV revenue
Despite its domination of the German cable TV market, Deutsche Telekom has always had difficulty making money from CATV. During the 1980s and 1990s, the company embarked on an ambitious programme of CATV network construction. Rather than owning all the subscribers itself, Telekom instituted a complex partnership system with regional companies. Some of these firms (known as RKS - Regional Kabel-Servicegesellschaften - companies) simply marketed cable TV services and billed customers, leaving Deutsche Telekom to own and control the network end-to-end. Others were allowed to build the local portions of the network in return for a higher cut of the revenues.
The result of heavy investment and some ceding of marketing control was that its cable businesses were at best marginal contributors to profitability, and at worst loss-makers. The board of the company now believes the time has come for payback - if not in the form of profit then in the form of exceptional gains from sales. These will be welcomed by Deutsche Telekom shareholders, who have seen the company's profits take a dive under pressure from new market entrants in the mainstream telecoms sector (Table 1).
Callahan Associates, Klesch & Company and any other future buyers will have to strike agreements with the regional marketing companies in relation to network upgrades. It is widely believed that the new buyers will require their local partners - who control up to 70 per cent of Deutsche Telekom's CATV customers - to contribute to upgrade costs or sell up.
Nevertheless, buyers may well believe that solving the problems of dealing with local service providers and with Deutsche Telekom itself over the d-box may be worthwhile. The valuation per subscriber for Deutsche Telekom's networks is well below that of networks in other parts of Europe. Operators such as UPC and UK-based NTL currently trade on per-subscriber valuations of more than US$5,000 (E5,350).
Still guarding the local loop
Both Deutsche Telekom and the buyers of its cable networks are involved in something of a cat-and-mouse game surrounding broadband access to the home. Currently, CATV is the only viable means of broadband access to most households. By selling these networks, Deutsche Telekom is effectively ceding control over this channel to other companies. It is therefore keen to ensure that no sales are made to obvious competitors - BT, France Telecom and Mannesmann are not on the list of potential purchasers.
Deutsche Telekom has also said that it wishes to retain at least 25 per cent of all nine networks. Under German corporate law, this would give Deutsche Telekom the right of veto over any major plans the networks may have. Bidders say it remains unclear whether Deutsche Telekom could hinder them from buying a third party, merging with a third party or selling parts of the network to a third party.
Deutsche Telekom's strategy leans heavily towards developing its position in the European mobile market, both in Germany and overseas (it has a controlling stake in the UK's One-2-One), and developing its position in internet- related businesses, such as its T-Online ISP service, the construction of internet data centres, and the development of application service provider (ASP) revenues.
But - and this could be crucial to its cable TV buyers - it is also aggressively committed to increasing the quality and speed of access connectivity in Germany. While, on the one hand, it is keen to showcase its broadband cable upgrades (in Berlin, for example, 680,000 households will benefit from an upgrade to 862MHz and full interactivity), on the other hand it is also rolling out its own DSL service, known as T-DSL.
T-DSL was available to 12 million households in 58 German cities by the end of 1999 and is targeted to be available to 17 million households in 220 cities by the end of this year, although the actual number of subscribers is expected to be well under 500,000 by the end of this year.
Deutsche Telekom is also aggressively marketing ISDN services. ISDN numbers registered impressive growth in 1999 (Table 2) and, although they are no match for cable modem services when it comes to speed, they have the distinct advantages of still being significantly faster than plain old telephone lines and of being available right now.
So, when Gary Klesch, CEO of Klesch & Company, talked of 'partnership with Deutsche Telekom' in announcing the deal for the Hess network, you could be forgiven for wondering how much of a partnership this will really be, and how long it will last.
Callahan Associates, whose strategy is to buy into operations at a point where a step-function in service delivery is required, hinted at the underlying competition between the buyers and the sellers when it declared that it sees the upgrade of its network as a way to offer superior service over competing systems. According to Dick Callahan, president and chief executive of Callahan Associates, upgrading the North Rhine network could take up to five years. Even so, he believes cable offers advantages over alternatives such as the digital subscriber line (DSL) technology being adopted by many established telecom groups - including Deutsche Telekom's DSL service. "The main point about cable is that the plant costs less to retro-fit, and once retrofitted it's a better service," he says.
For the moment, T-DSL is not comparable to CATV. For a start it is mainly promoted as a means of high-speed internet access, whereas CATV is still primarily a means of receiving broadcast TV. But there is clearly potential for DSL and CATV to cross swords in the near future in the areas of high-speed Internet access.
More sell-offs
It is not just Deutsche Telekom's cable networks that are changing hands. In May 1999, DB Investor, a subsidiary of Germany's biggest banking group Deutsche Bank, acquired Telecolumbus, the country's second largest cable TV operator, from the energy group RWE Energie and the conglomerate Veba. Telecolumbus has around 1.7 million cable subscribers.
In March this year, DB Investor added to its cable TV portfolio by acquiring SMATcom from the Alchemy Funds investment fund and other investors. SMATcom is a relatively small operator, with 240,000 subscribers mainly in the Essen and Rhine-Main regions in western Germany and in eastern Germany.
In February it was rumoured that Deutsche Telekom was in talks with DB Investor to buy Telecolumbus in a bid to bulk up its cable TV holdings before selling majority stakes in them. At the time it was rumoured that DB Investor was asking E2 bn upwards for Telecolumbus, having paid E720 m for the company in 1999.
Although the talks with Deutsche Telekom failed to yield a sale, it now seems that DB Investor may have the opportunity to turn a quick profit on its cable holdings after all. The company has been offered E1.78 bn for Telecolumbus by Callahan Associates, according to a report in the German weekly Die Tele Boerse in April. It is not clear whether DB Investor has accepted the offer.
While ownership of the Deutsche Telekom networks and Telecolumbus may be the biggest plays in Germany at the moment, there are a number of smaller companies which may make tempting targets before too long. Among them is PrimaCom, which controls around four per cent of German CATV subscribers. The company added some 47,000 new subscribers in 1999, 18,000 of which were acquired through purchasing contiguous networks at an average price of E444 per subscriber - a bargain if the Callahan Associates' thinking is correct.
According to Jacques Hackenberg, PrimaCom's CEO, the company has an acquisitions pipeline which should yield around 18,000 subscribers per quarter in the near future at prices which represent 'tremendous value'.
telecoms-mag.com |
