Shortly after confirming a deal to acquire Liberty Global’s operations in Germany and the CEE region, Vittorio Colao (pictured) set the battle lines with Deutsche Telekom CEO Timotheus Hoettges with a fierce attack, stating his counterpart’s strategy was “self serving” and against the consumer interest.
In a call discussing Vodafone’s €18.4 billion deal to acquire Liberty Global’s operations in Germany, Czech Republic, Hungary and Romania – confirmed this morning – Colao said he was “amused” by Hoettges’ response to the deal.
Hoettges reportedly said in Deutsche Telekom’s Q1 earnings call that the tie-up represented the “remonopolisation” of Germany’s cable market and would distort competition.
Colao hit back, stating: “Our mission has always been to protect competition and to push for competition,” he said. “Tim’s is to protect dominance and grow dominance.”
Vodafone’s chief continued to note Deutsche Telekom currently has a presence in 70 per cent of German homes: “That is not pro consumer. It is pro DT. It is amusing he is talking about remonopolisation because he wants to keep his dominance…DT’s argument is self-serving.”
The war of words between the two CEOs kicked off at Mobile World Congress earlier this year, when Hoettges said a proposed Vodafone tie-up with Liberty Global would be “unacceptable” from a competition point of view.
The agreement between Vodafone and Liberty Global, which is subject to regulatory clearance, marks a major tie-up between the two companies which had been expected in some form for a number of years, following on-again; off-again talks.
A deal had, however, seemed to be in the offing since February, when the two powerhouses kick-started negotiations. The accord follows a joint venture agreement in the Netherlands in 2017.
In a statement, Vodafone said the deal accelerated its “converged communications strategy through in market consolidation”, and outlined the importance of increased competition in Germany, currently its largest European market.
Vodafone stated the deal with Liberty creates “a converged national challenger to the dominant incumbent in Germany”, with the scale to accelerate the German government’s digital ambitions.
In total, Vodafone said it would bring gigabit connections to around 25 million German homes, representing 62 per cent of total households, by 2022 and will create a strong second national provider of digital infrastructure in the country.
Vodafone acquired Germany’s largest cable operator Kabel Deutschland for €7.7 billion five years ago. By proposing to acquire Liberty Global’s Unity Media, it could own the second largest as well.
Along with Deutsche Telekom’s objections, the deal is likely to trigger regulatory probes, given Vodafone’s proposed dominance in the German cable market.
In Czech Republic, Hungary and Romania, the deal “transforms Vodafone’s fixed-line and convergence strategy”, complementing the company’s existing mobile operations in the three markets.
Combined, Vodafone said the entity will serve 15.8 million mobile customers, 1.8 million broadband, 2.1 million TV customers and reach 6.4 million homes.
Vodafone expects cost and capex synergies of approximately €535 million per year by the fifth year post completion, and it will fund the deal through existing cash and new debt facilities.
It will pay an initial €10.8 billion in cash, with the remaining €7.6 billion in Liberty debt.
Colao added the company was “committed to accelerating and deepening investment in next-generation mobile and fixed networks, building on Vodafone’s track record of ensuring that customers benefit from the choice of a strong and sustainable challenger to dominant incumbent operators”.
Paolo Pescatore, VP multiplay and media at CCS Insight, believes the tie-up “reinforces the importance of owning both fixed and mobile networks on the road to 5G” and represents a strategically sound approach by Vodafone to strengthen its position, “with nearly 30 per cent of European service revenue now coming from its fixed line business”.
However, he also said the research company “strongly believed regulators will block or restrict the deal”.
“Vodafone and Liberty Global have a relatively solid presence in the fixed-line and TV markets, so any move would cut the number of companies in both segments,” he said.
For Liberty Global, the company will be left with around €10 billion, which it could use to bolster its position in the UK and Switzerland, two markets where it does not own a mobile operation. In the call, Colao said a possible acquisition of Liberty Global’s UK operations Virgin Media was currently “not on the agenda”, before adding that “you can never say never in life”.
Vodafone also agreed to pay Liberty Global a €250 million break fee if the deal is rejected by regulators.
Speaking to Financial Times, Liberty Global CEO Mike Fries was confident it will gain approval, stating “there’s no question it clears”.
Regulatory clearance is expected by mid-2019.