Vodafone's cable ambitions are more than a land-grab

Tools

While Vodafone's putative bid for German cable operators Kabel Deutschland has not yet been confirmed by either party, the initial reaction by the UK stock market was to wipe 2.4 per cent off Vodafone's share price.

The reason behind this knee-jerk reaction was said to be worries that Vodafone could over-egg its bid for the giant cable company--which is capitalised at €6.2 billion-- having just reported a less-than-stellar set of quarterly numbers dragged down by continued weakness across its European operations.

Some observers have said that if Vodafone does break cover and make an offer for Kabel Deutschland then it'll be little more than an effort to bolster its German enterprise business. Its £1.3 billion acquisition of Cable & Wireless Worldwide last year is referenced as the model whereby Vodafone's UK business should see a step-change in its revenues from business customers.

However, others view Vodafone's cable ambitions differently.

Combining Germany's largest cable TV operator with Vodafone's extensive mobile operations presents the company with significant opportunities--namely to sell content subscriptions across a huge range of different devices.

The bundling of broadband, phone and TV has enabled Kabel Deutschland to persuade its customers to subscribe to ever-more services, and it has now built a subscriber base approaching 14 million.

Evidence that including cable TV into the marketing mix can make a real difference comes from the success Telefónica Spain has achieved with its Fusion quad-play service.

The company, which only launched the service last October, said Fusion has boosted customer loyalty, helped acquire 600,000 new mobile contracts from competitors and boosted its share of the broadband market.

This is not trivial given the fragile state of the Spanish telecoms market, and it was a likely factor in helping Telefónica Spain report significantly improved margins in the final quarter of last year.

Vodafone is now the only major telco in Europe without a significant fixed-line network, although it does own fibre in some countries. But this lack of a fixed network is being increasingly viewed as something that puts Vodafone at a disadvantage to its pan-European rivals when the battleground appears to be sliding towards bundling mobile services with TV and broadband.

What is clear is that the European telecoms sector is undergoing seismic change. The notable £1 billion acquisition by BT of premium sports rights last year is one marker, while American cable giant Liberty Global's surprise purchase of cable TV company Virgin Media--which just happens to offer mobile and broadband--is another.

If Vodafone does venture forth with a bid for Kabel Deutschland, and this could happen within days, the shape and future dynamics of the mobile market will be radically altered.--Paul