Leading wireless service provider,
Vodafone Group Plc
) has finally confirmed its takeover plans for Germany's biggest
cable operator Kabel Deutschland Holding AG. According to
market reports, the company will stick to its revised €7.7
billion offer for Kabel Deutschland that surpasses
Liberty Global Inc.
) €7.5 billion bid.
We believe the multi-billion dollar acquisition would fortify
Vodafone's presence in the European telecommunication market. In
addition, it will also strengthen its position against players
with equal potential such as Liberty Globaland Deutsche Telekom
AG in Europe's largest telecommunication market.
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 Europeis 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
increasingly looking for markets, where they can increase share
with bundled video, broadband, and telephone that warrants higher
margin and lower churn rates.
But, 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 its 3.3 million customers
in Germany with DSL services.
Further, Vodafone's efforts to bring its customers within one
network infrastructure (DSL to LTE) through the deal would result
in additional savings for the company by curtailing expenses on
network build outs.
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).
FRANCE TELE-ADR (FTE): Free Stock Analysis
LIBERTY GLBL-A (LBTYA): Free Stock Analysis
TELECOM ITA-ADR (TI): Free Stock Analysis
VODAFONE GP PLC (VOD): Free Stock Analysis
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