VOIP services

Cable Adds to Euro Pressure

Cable operator Liberty Global Inc. (Nasdaq: LBTY) showed today just why Europe's incumbent operators are facing intense competitive pressure. (See FT Warns, Europe Quakes.)

Reporting its 2005 financial results today, Liberty, which owns cable operators in seven Western European countries and six markets in Eastern Europe, added about 4.5 million customers last year, nearly 3.7 million of which were in Europe. The company also has operations in Japan, Australia, and Latin America. (See Liberty Global Reports 2005.)

That growth, which helped revenues increase 28 percent to $5.15 billion, was driven by organic subscriber additions but primarily by acquisitions, particularly in Switzerland, where CableCom added more than 2 million customers. (See Liberty Intercepts Cablecom IPO, Liberty Global Buys NTL Ireland, Liberty Boosts Telenet Stake, and Liberty Global Buys Romania's Astral.)

It also helped the firm's share price rise a slender 11 cents, about 0.5 percent, to $19.74, giving the company a market capitalization of nearly $9.4 billion.

During the company's conference call today, Liberty CEO Mike Fries paid particular attention to the increasing uptake of VOIP services, noting that, of the company's 480,000 telephony subscriber additions in 2005, the majority were for VOIP, a service now available in seven European markets, with Austria, Poland, and Romania the most recent launch markets.

Now the company is adding 9,000 new VOIP connections each week in Europe, a run rate that would give Liberty 468,000 new VOIP customers in 2006. While this is spread across a number of territories, and is small compared with the total available European market of about 200 million households, it still adds to the growing number of voice connections that the incumbents no longer have, a competitive pressure that is forcing the national operators to increase their own VOIP marketing. (See FT Counts VOIP Lines and 'New Wave' Drives BT.)

Liberty's management sees the growth continuing in 2006, with revenues due to climb 32 percent to $6.8 billion. The company plans to upgrade its networks in Eastern Europe, regarded as a particularly hot growth region, while Scandinavia is regarded as too saturated -- Liberty already sold its Norwegian business and is looking to offload its Swedish operations. (See Liberty Offloads UPC Norway.)

It is also advancing its video service capabilities, with plans to introduce video on demand, personal video recorders, and high-definition TV in the Netherlands this year. Fries believes his company has the edge over the traditional telecom operators that are still piecing together or just ramping up their IPTV capabilities, with Dutch incumbent KPN Telecom NV (NYSE: KPN) a case in point. Last year KPN started to offer standard over-the-air TV services to get a foot in the TV market, while its initial IPTV service launch is due in the second quarter of this year. (See KPN Updates on IPTV.)

It's not as if Europe's incumbents didn't already have enough to worry about. They already face increasing competition from broadband-enabled alternative operators, VOIP specialists, and fixed/mobile voice-line substitution, without the cable players getting their act together, too. (See Euro Giants Lose Market Share.)

While ntl group ltd. (Nasdaq: NTLI), now combined with Telewest, provides a significant rival to BT Group plc (NYSE: BT; London: BTA), Liberty is eating away at incumbent customer bases in multiple territories, with its VOIP-based voice offer becoming a significant weapon. (See NTL, Telewest Complete Merger and BT Takes Swype at Skype.)

"Cable operators aren't nearly as important in Europe as they are in North America, where most homes have a cable connection and cable modems dominate broadband," says Heavy Reading senior analyst Graham Finnie, author of a report on European broadband. (See HR Tracks Europe's Need for Speed.)

He says European cable operators were in the doldrums for quite some time, investing little in their networks and providing little in the way of a challenge to the dominant telcos. But with many debt issues resolved and with cable companies investing in broadband infrastructure and VOIP technology, things are changing.

"They may not be as important as the North American players, but it doesn't mean they're not having an impact. And they're all getting into triple play," says Finnie, who singles out Germany as the one major market that has yet to see a cable revival. (See Providence Completes KDG Buy.)

— Ray Le Maistre, International News Editor, Light Reading

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