IDC Comment: Vodafone Carves Out Another Piece of Cable Territory
London, 17 March 2014 - Ono has agreed to be acquired by Vodafone for €7.2 billion. Having rejected two previous offers from Vodafone, and despite stating its commitment to an IPO on several occasions, the Spanish cable operator has at last yielded to Vodafone's determination to acquire a fixed-line operator in one of its biggest operating markets.
The deal provides further proof that the days of Vodafone's "mobile will win" strategy are well and truly over. Nowadays, Vodafone evidently believes (and we concur) that it is an increasing advantage for network operators to be able to provide its services over both fixed-line and mobile access networks, to continue meeting evolving customer needs in both the consumer aand the business segment. The strategic importance of this is great enough for Vodafone to dig deep into its war chest for fixed-line assets: it out-bid Liberty Global in the race to acquire Kabel Deutschland last year, and it has twice raised the amount of money on offer to the owners of Ono.
Why is fixed-line capability so important to Vodafone?
- In the consumer market, TV has emerged as the centre of gravity for household telecoms service providers. TV can provide clearer competitive differentiation than broadband and voice, and its pricing is holding up better. Moreover, a growing portion of the consumer broadband market is looking for service bundles, and without the ability to offer TV a service provider is effectively locked out of that part of the market. In particular, quad-play bundles are proving attractive in some European markets, and none more so than Spain, where Telefonica gained around one million subscribers to its Fusion quad-play bundle in the year following its launch in late 2012. With the spread of 4G networks, and the migration of mobile service value from voice to data, it is likely that we will see TV become an increasingly important component of mobile service bundles over time as well.
- In the business market, the need to reduce costs is a constant, especially in the IT organisation where budgets are generally shrinking. As a result, companies are interested in saving money by sourcing their fixed and mobile telecoms services from a single supplier. There is also increasing demand for communications services that span fixed and mobile networks, both traditional services such as telephony and advanced services such as video conferencing and collaboration. This demand is being driven both by the shrinking differential between the price of fixed and mobile services, and by the increasing sophistication and ease of integration offered by the new generation of UC&C (unified communucation & collaboration) services.
- Network development strategy is also pointing operators in the direction of combined fixed and mobile. Most of the more advanced operators, Vodafone included, are developing common IP core networks overlaid with IMS (IP Multimedia Subsystem), an access-agnostic service control layer. To realise the full potential of that combination, operators need to be able to offer access to services over a variety of technologies, both fixed and mobile.
Partly as a result of the move to combine fixed and mobile, the European cable market has seen a lot of M&A activity recently. Another factor driving this trend is the determination of US cable operator Liberty Global to expand its interests in Europe. The Vodafone/Ono deal is the latest in a recent series of completed or pending mergers involving cable operators, including Vodafone/Cable & Wireless, Liberty Global/Virgin Media, Vodafone/Kabel Deutschland, Liberty Global/Ziggo and Numericable/SFR. The market shows no sign of cooling down and we expect further transactions to emerge.
Where might Vodafone look next for fixed-line acquisitions? Italy is another important Vodafone market, and although there are no cable operators per se in Italy, both Wind and Fastweb operate fixed-line networks that could be attractive. Having said that, a Wind merger would face stiff regulatory scrutiny because it would involve a consolidation from four to three mobile operators; and so far Fastweb's owner Swisscom has shown little interest in selling the asset. Another possiblity for Vodafone is the Netherlands, despite Ziggo's acceptance of an offer from Liberty Global. That deal is being examined closely by regulators, because it would involve consolidation of the Dutch cable market. If regulators block the deal, or if they impose conditions that make it less attractive, Ziggo could prove receptive to a new offer from Vodafone.
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