Germany: 'nein' Vodafone-Unitymedia cable deal sparks opposition

The prospect of a tie-up of two telecom operators has alarmed German rivals who warn the deal will distort competition and slow the roll-out of high-speed internet.
Just say no.

Resistance is forming in Germany to Vodafone’s planned purchase of cable network operator Unitymedia. Rivals warn the deal could threaten the expansion of the country’s fiber-optic network, Handelsblatt has learned.

Vodafone, which offers both cell phone and fixed line services in Germany, is in talks to buy some assets of US telecoms group Liberty Global in continental European countries, including Unitymedia in Germany, the Financial Times reported last week.

Unitymedia offers networks for fixed-line telephony, broadband internet and TV. The deal is said to be worth €16.5 billion ($19.8 billion) and an agreement could be reached soon, the newspaper said. It would give Vodafone a national cable network in Germany where it currently lacks operations in the western states, where Unitymedia is active.

The global telecoms industry is undergoing a wave of consolidation, partly due to the technological convergence of telecoms services such as mobile and fixed-line broadband internet and TV.

Germany already has one of the lowest rates of adoption for fiber-optic cable in the world.

But fiber-network industry association Buglas, which represents small telecoms operators and their suppliers, strongly opposes the upcoming deal in Germany. “Vodafone and Unitymedia would together form a nationwide cable monopoly that would seriously threaten the profitability of the predominantly regional expansion of fiber-optic networks,” Buglas managing director Wolfgang Heer said. The deal would make Vodafone so big and powerful in the cable market that it would distort competition and “deprive regional suppliers of any ability to compete,” he said.

Germany already has one of the lowest adoption rates for fiber-optic cable in the world. Deutsche Telekom, the formerly state-owned monopolist, has been reluctant to build up a high-speed internet network of its own, prompting smaller players, including United Internet and KKR-controlled Deutsche Glasfaser, to lay their own cables.

Handelsblatt has obtained a statement to be released by Buglas where the group complains that Vodafone and Unmitymedia closed their networks to rivals and were refusing to compete. The regional telecoms firms and Deutsche Telekom rent out their networks to competitors and allow them to offer their own services. Vodafone and Unitymedia, by contrast, do not have to open their networks for fast broadband internet connections.

Deutsche Telekom boss Timotheus Höttges also criticized the possible Vodafone-Unitymedia deal, saying he regards it as “unacceptable.”

But some cartel experts differ. The lack of regional overlap between Vodafone and Unitymedia means the deal would be similar to the merger of regional newspapers, Justus Haucap, a former member of the German Monopolies Commission, said. “I don’t think this will harm competion,” he said. The firms don’t compete for end-users and their tie-up probably wouldn’t hurt competition in the cable TV market, he said.

Besides, they likely wouldn’t dominate the market. Vodafone and Unitymedia together have some 14 million TV customers. Deutsche Telekom has 13.2 million broadband connections. Cartel authorities regard a company as dominant if it controls more than 40 percent of the market.

Cable network operators may yet have to make changes. The Federal Network Agency said last week it was considering requiring cable TV operators to provide network access to third parties. And in some regions, cable operators may have a dominant market position, meaning the regulator could set price controls, or require providers to open up their infrastructure to rivals.

Ina Karabasz is an editor at Handelsblatt's companies and markets team, covering telecommunications, IT and security issues. To contact the author: [email protected]