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Eurobites: Pump Up the Broadband

Buenos dias, amigos! Yes, it's European news snippet time, and the focus this week should get the broadband gear makers salivating over their lunchtime paella, as some of Europe's carriers prepare to spend even more €uros on their high-speed access infrastructures.

And, as usual, there's no shortage of M&A talk on the Olde Continent.

Telefònica Ramps Up Broadband
Signing up broadband customers was the main aim of Europe's operators in 2004, and it looks as if nothing's changed in 2005. Following news earlier this week that Italy's FastWeb SpA is upping its broadband capex, Spain's incumbent carrier Telefònica SA has announced the exact same idea (see FastWeb Unveils Expansion Plan).

The carrier has pledged to invest €4.5 billion (US$5.9 billion) in fixed and wireless broadband systems in Spain during the next four years, compared with its previous capex plan of €3 billion ($3.9 billion). Of that total, €3 billion will be spent on fixed infrastructure and €1.5 billion ($1.95 billion) on wireless gear.

The move comes as Telefònica faces increasing pressure from the Spanish ISP businesses of some of its fellow European powerhouses. Both Deutsche Telekom AG (NYSE: DT), through its T-Online International AG unit, and France Telecom SA (NYSE: FTE), through its Wanadoo SA business, are offering broadband access and VOIP services in Spain.

Telefònica also faces broadband competition from alternative providers such as Jazztel plc and cable operator Grupo Auna.

Telefònica's aim is to have 6.5 million ADSL connections in Spain by 2008, compared with the 2.2 million it had last September when it reported its most recent financials (see Telefonica Reports Latest Numbers). Of that 2.2 million, Telefònica's retail business handled 1.7 million, while about 500,000 DSL lines were leased and resold by competitors such as T-Online and Wanadoo. The incumbent's aim is to not only boost DSL uptake in general, but to invest heavily in marketing and increase its retail market share, which currently stands at about 60 percent.

NTL and Telewest Edge Closer
Speculation abounds that British cable operators NTL Group Ltd. (Nasdaq Europe: NTLI) and Telewest Communications Networks plc (Nasdaq: TWSTY) will put us all out of our misery and tie the knot this year, but it's by no means a certainty.

Both operators have untangled their finances and are expanding their services using systems from the same suppliers in what looks like an effort to reduce any future integration issues (see S&P Positive on NTL Restructuring and S&P Raises Telewest Credit Rating).

For example, both have sourced their Ethernet access gear from World Wide Packets Inc., making them two of WWP's three European customers; and this week both launched video-on-demand services using SeaChange International Inc. (Nasdaq: SEAC) equipment. (See Brits Do VOD With SeaChange, NTL Launches VOD, WWP Scores With Brits, and WWP Gets Finnish Deal.)

Telewest also announced its national Ethernet service this week (see Telewest Launches UK Ethernet Services). The company says there is great interest and uptake of Ethernet by business and local government users, but adds that sales of ATM and Frame Relay services are still strong, though users now want more bandwidth for their money.

Neither company is commenting on a potential merger, a move that would make operational sense, says Ovum Ltd. senior analyst Angel Dobardziev. He says the only barrier might be the regulatory threat of having to open up their networks if the combined firms are deemed by the U.K.'s Office of Communications (Ofcom) to have too much market power.

But Dobardziev believes the positives outweigh the negatives and "it's quite likely they'll merge this year."

M&A Roundup: Continental Action
  • The Dutch government has cut its stake in national operator KPN Telecom NV (NYSE: KPN) to about 14 percent by selling 150 million shares for about €1 billion ($1.3 billion).

  • Local media reports suggest there are now 19 parties interested in bidding for the Czech government's stake in Cesky Telecom a.s. (see Eurobites: Who's Eatin' Whom). All interested parties have until January 21 to register their interest. The operator is making itself even more attractive to potential bidders by continuing with cost-cutting measures: It plans to lay off 1,800 staff this year, which would leave it with about 7,000 employees. In 2004 it cut 2,100 jobs.

  • France Telecom denies it is preparing a bid for Italian operator Wind Telecomunicazioni SpA, which recently aborted merger talks with FastWeb (see FastWeb Denies Wind Rumors). Some analysts now believe an IPO is the best way for Wind's current owner, Enel SpA, to offload its telecom business.

  • The government in Slovakia is considering the sale of its 49 percent stake in Slovak Telecom. The other 51 percent of the national operator is owned by Deutsche Telekom.

    Other European news of interest:

    — Ray Le Maistre, International News Editor, Light Reading

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