Broadband services

Liberty Global Keen on Vodafone Tie-Up – Report

Vodafone's stock has risen in London trading Wednesday morning after the chairman of cable giant Liberty Global was reported to have confirmed interest in a possible merger or alliance in the European telecom market.

Liberty Global Inc. (Nasdaq: LBTY) chairman John Malone is reported to have said that Vodafone Group plc (NYSE: VOD) and his company would make a "great fit" in Europe during an interview with Bloomberg .

"We've looked at that from our side and there would be very substantial synergies if we could find a way to work together or combine the companies with respect to western Europe," he is quoted as saying.

A merger would combine one of Europe's biggest 4G operators with the leading cable and pay-TV player across a number of the region's markets.

Vodafone's share price rose by more than 4% on the London Stock Exchange to 236.7 pence during morning trading as a result of the latest rumors.

Speculation about a tie-up between the two companies surfaced earlier this year and Vodafone CEO Vittorio Colao would not rule out a move when quizzed by several analysts about the likelihood of a deal during the operator's full-year earnings call yesterday.

"Should Liberty acquire us? That's a question for Mike [Fries, Liberty's CEO], not me," he told analysts. "We always look at assets and opportunities to integrate -- it's a matter of synergies and convergence relative to market needs."

Colao is working hard to re-invent Vodafone as a fully integrated operator with both fixed and mobile assets. The operator has already completed takeovers of cable companies in Germany and Spain, but an alliance with Liberty Global would be far more transformative.

Vodafone serves more than 122 million mobile subscribers across its European markets, while nearly 26 million homes in the region were taking services from Liberty Global at the end of March.

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Liberty Global has also demonstrated its interest in acquiring mobile assets in European markets to offer a "quad-play" of fixed voice, broadband, mobile and TV services to consumers.

Last month, its Belgian Telenet subsidiary agreed to pay €1.325 billion ($1.5 billion) for BASE , a mobile operator owned by Dutch incumbent KPN Telecom NV (NYSE: KPN). Telenet currently operates as a mobile virtual network operator in the Belgian market -- using capacity on the network of Mobistar SA , Belgium's second-biggest mobile operator -- but feels that network ownership will allow it "to secure long-term mobile access conditions." (See Telenet Buys KPN's BASE in $1.4B Deal.)

Both Vodafone and Liberty are desperate to avoid being left behind in the market for converged services, which have already proven popular in a number of southern European markets.

In the UK, a merger between BT Group plc (NYSE: BT; London: BTA) and EE -- yet to be approved by competition authorities -- would be in a much stronger position to sell bundled services than either Vodafone UK or Virgin Media Inc. (Nasdaq: VMED), the cable operator that Liberty Global acquired in 2013. (See BT Locks Down £12.5B EE Takeover Deal.)

In Germany, meanwhile, incumbent Deutsche Telekom AG (NYSE: DT) has already launched a series of quad-play offerings, putting pressure on both Vodafone Germany and Liberty's Unitymedia GmbH business.

"It will have an impact and we will have to respond and have our own products in that space," said Colao, when asked about Deutsche Telekom's quad-play move during yesterday's earnings call.

A merger with Liberty Global would undoubtedly strengthen Vodafone's converged-services hand in the German market. But it could encounter regulatory opposition because the mobile operator already owns cable market leader Kabel Deutschland GmbH .

Notwithstanding those concerns, some market watchers have suggested to Light Reading that a deal could see Vodafone break itself in two, merging its European business with Liberty Global and running its African and Asian operations as a separate company.

Speaking to analysts yesterday, Colao indicated that pursuit of converged-services opportunities would be a strategic priority for Vodafone this year. (See Vodafone May Buy Content to Fight BT, Telefónica.)

He also said the operator was thinking of buying content rights to challenge BT and Telefónica in the UK and Spanish TV markets.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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