Neuf Lines Up IPTV Acquisition

Neuf Cegetel Group (Euronext: NEUF) has entered into exclusive talks to buy French triple-play service provider Club Internet from Deutsche Telekom AG (NYSE: DT), the operator announced Monday. (See Neuf in Exclusive Talks.)

Although no financial details have been made available, French media reports put the winning bid at around €460 million (US$624 million). That figure was first suggested last week when Neuf denied it had already sealed a deal to buy Club Internet (also known as T-Online France), one of the units Deutsche Telekom is selling as part of an asset disposal process. (See Pas Vrai, Says Neuf and DT Plans M&A, IPTV Push.)

Club Internet, which launched its IPTV service in the summer of 2006, had 570,000 broadband customers at the end of 2006. The ISP won't say how many IPTV subscribers it has. (See Neuf: Time Is Right for IPTV.)

If Neuf Cegetel completes the deal, which it expects to do before the end of June, it would make it the second biggest broadband player in the country with about 2.8 million DSL subscribers, or more than 23 percent of the French broadband market. That's second only to Orange (NYSE: FTE), which had 5.9 million broadband subscribers, nearly half of France's 12 million broadband users, at the end of 2006.

Iliad (Euronext: ILD), which is believed to have been Neuf's closest rival in the bidding war for Club Internet, is currently France's second biggest broadband player: It had 2.3 million DSL customers at the end of last year, giving it a market share of 19 percent. Telecom Italia (TIM) has a 6.4 percent market share, about 770,000 DSL customers. (See Italians Prep Big French DSL Rollout.)

If the deal goes through, Club Internet would be just the latest in a string of broadband access-related acquisitions made by Neuf Cegetel since last summer. In September 2006 it struck a €288 million ($390 million) deal to buy the AOL France Internet access business, which included 500,000 broadband customers. (See Neuf Cegetel Buys AOL France.)

Since then it has made a few strategic fiber-to-the-home (FTTH) takeovers, as well as executing its IPO. (See Iliad Buys Into French FTTH, Neuf Acquires Mediafibre, Neuf Takes Over Erenis, and Neuf Cegetel Floats Higher.)

A successful completion would also pose an interesting challenge for the Neuf Cegetel broadband services team. That's because it uses a home-grown IPTV middleware platform to deliver its TV-over-DSL services to more than 300,000 of its broadband subscribers, having launched its own IPTV service more than two years ago. Club Internet, meanwhile, manages the delivery and presentation of its IPTV services using Microsoft Corp. (Nasdaq: MSFT)'s IPTV technology. (See Neuf: Time Is Right for IPTV and Club Internet Unveils IPTV .)

Running two IPTV platforms in the long run wouldn't be efficient, so Neuf Cegetel would have to decide whether to phase out the Microsoft platform or give the software giant an even bigger reference customer in France, where all the major broadband providers offer TV and video services.

France Telecom, which uses the SmartVision IPTV platform from Thomson S.A. (NYSE: TMS; Euronext Paris: 18453), has more than 600,000 telco TV customers, while Iliad, which uses its own technology to provide TV services, says that more than 1.7 million of its customers can watch regular TV programs over their broadband connections. (See France Telecom: 'More IPTV, Please'.)

— Ray Le Maistre, International News Editor, Light Reading