The German monopoly commission (Bundeskartellamt) has cleared the acquisition of Kabel Baden-Württemberg by Liberty Global subject to conditions and obligations. Following receipt of regulatory approval, Liberty has consummated the purchase of Germany’s third largest cable operator.
Mike Fries, president and CEO of Liberty Global said in a statement: “This is a major step forward for German consumers and our Company. The combination of Unitymedia and KBW creates a powerful platform for innovation and growth. Together, our German operations pass over 12 million homes, provide over 10 million subscription services and generate approximately €1.6 billion in annualized revenue.2 It’s well known that the cable industry in Germany is the primary source of infrastructure-based competition with the incumbent Deutsche Telekom, and we intend to capitalize on the opportunity to bring German consumers the most advanced broadband and digital TV products available.”
The consideration paid by Liberty Global to acquire Kabel BW was based on an agreed upon enterprise value of €3.16 billion ($4.10 billion).
The Bundeskartellamt said that Liberty undertakes to grant special termination rights for large contracts for retail TV services and to end its encryption of digital free TV programmes. The first condition refers to the delivery of signals to so-called Level Four networks. The second refers to all the free-to-view private broadcasters (RTL, ProSieben etc). By law, all public channels are already distributed unencrypted.
The company has also agreed to forgo certain exclusivity clauses and ownership claims or rights to dismantle household cable connections.
Andreas Mundt, president of the Bundeskartellamt, said in a statement: “This merger could only be cleared with far-reaching commitments by the companies involved. We now see the chance of more competition in the cable markets. With the obligation to open up large long-term contracts with the housing industry and give up further contractual rights as well as the basic encryption of digital free TV programmes, the negative effects of the merger are compensated.”
The acquisition means that two of the former Deutsche Telekom networks (Unitymedia and Kabel BW) now become one, with Kabel Deutschland being the other.
In this market the cable network operators compete for retail TV service contracts which are concluded with the owners of large premises with a large number of housing units. The TV cable network operators are dominant in this area and can also offer end customers telephony services and internet access (triple play).
Long-term contracts with terms of 10 or 15 years, as well as building exclusivity and legal uncertainty about network ownership after expiry of the contract, pose considerable barriers to market entry for other competitors such as small cable network operators or telecommunications providers.
In addition, due to the extension of range of operation, the planned merger will also have a negative impact on the so-called feed-in market, i.e. the competitive relationship between the cable network operators and TV channels.
In order to avoid a prohibition of the merger, Liberty approached the Bundeskartellamt with an offer of commitments, which has been upgraded several times. In the Bundeskartellamt’s view the commitments increase the competition opportunities of third providers and compensate for the negative impact of the merger.
Housing associations in the network areas of Unitymedia and Kabel BW will be granted a special contract termination right. This will offer them an earlier opportunity to look for a less expensive network operator for their housing units. The special termination right applies to contracts for retail TV services with more than 800 housing units and remaining contract terms of more than three years. This covers a large amount of the particularly attractive retail TV service contracts.
The abolition of exclusivity and ownership clauses will ensure legal security, according to the Amt. Finally, the decision not to encrypt digital free TV programmes will make it easier for rival companies to compete for retail TV service contracts and will thus also have a positive impact on the feed-in market. Following intense negotiations on which form these commitments should take, the merger was cleared subject to the above obligations.
Kabel BW provides television, broadband internet and telephony services in the German federal state of Baden-Wurttemberg. As of September 30, 2011, Kabel BW’s broadband communications network served 2.4 million customers who subscribed to 3.8 million video, telephony and broadband internet services.
