Vodafone Group Plc
) reportedly acquired 76.48% stakes in Germany's largest cable
network company, Kabel Deutschland Holding AG, for €7.7 billion
We believe the multi-billion dollar acquisition would fortify
Vodafone's presence in the European telecommunication market. In
addition, it will strengthen its position against players with
equal potential such as
) and Deutsche Telekom AG in Europe's largest telecommunication
It is evident that the prospective acquisition would oust
major players in the German wireline industry. Vodafone would
then be an undisputed leader in wireline business with the
biggest loaf of cable TV and broadband business in Deutsch
West Europe is experiencing growing demand for pay-TV services
together with triple-play bundled services that combine basic
cable TV and Internet. Telephone carriers like Vodafone are
exploring markets, where they can increase share with bundled
video, broadband and telephone that warrants higher margin and
lower churn rates.
However, beyond this, Vodafone foresees significant cost
synergies (approximately 300-500 million Euros) as it will not
have to pay rentals for copper lines to Deutsche Telekom.
Vodafone currently requires these copper lines to provide DSL
services to its 3.3 million customers in Germany.
Further, Vodafone's efforts to bring its customers within one
network infrastructure (DSL to LTE) through the deal would result
in additional savings by curtailing expenses on network build
However, we believe that the implementation of network
conversion remains a long-term process and involves structural
changes. Hence, in the near future, we expect the Kabel
Deutschland deal, which comes with an existing set of network
backhauls, to provide a good platform for offloading data traffic
and resolving spectrum issues for Vodafone.
Vodafone, which operates in the European market with the likes
Telecom Italia S.p.A.
) currently carries a Zacks Rank #3 (Hold).
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