Liberty, Vodafone believe EU more relaxed on cable mergers

By Harro Ten Wolde and Peter Maushagen

COLOGNE, Germany (Reuters) - Liberty Global (LBTYA.O) and Vodafone (VOD.L) believe European regulators have become more relaxed about possible consolidation in the cable industry, the heads of their German cable businesses told Reuters, as the groups discuss an asset swap.

Brussels is taking a broader view of the cable market than in the past because firms are now also facing competition from telecoms companies in broadband and TV, as well as streaming services such as Netflix (NFLX.O), the executives said.

That could create more scope for mergers, as has already happened in the mobile telecoms sector, where Brussels has recently waved through several deals.

"We see that big telecoms providers are allowed to merge. We see that politicians support this trend in order to strengthen the ability of companies to invest," said Manuel Cubero, chief executive of Vodafone's Kabel Deutschland, in an interview at the ANGA cable conference in Cologne.

"That is why we hope for EU regulation which will give us freedom to act. And we will use this freedom," added Cubero, who has been designated to run all of Vodafone's German operations including mobile while the group seeks a new German chief.

Last week, Vodafone said it was in early stage talks about exchanging selected assets with Liberty Global, which could enable each to better compete with rivals.

Lutz Schueler, the chief executive of Liberty Global's Unitymedia cable business, put Brussels' change in attitude down partly to the European Union's new commissioner for digital society and economy, Guenther Oettinger.

"The Commission's view of consolidation in the telecom sector in Europe has changed," he said on the sidelines of the same conference.

"In my view, EU Commissioner Guenther Oettinger has recognised that size for European network operators is important. Because size ultimately means increased investment."

OVERLAPS

Cubero and Schueler declined to comment directly on the asset-swap talks between their parent groups.

But Cubero said Vodafone was eager to beef up in broadband. "Over here (in Germany) we already have significant scale, but of course we want to grow further. The more we grow, the better we can compete with Deutsche Telekom in broadband," he said.

Analysts and sector bankers say the two most important countries for both firms where they overlap are Britain and Germany. The two groups both operate in Ireland, the Netherlands, Czech Republic, Hungary and Romania as well.

Vodafone bought Germany's biggest cable operator, Kabel Deutschland, two years ago for $10 billion. Liberty Global owns Germany's second-biggest cable operator, Unitymedia.

In recent years, the European Commission has allowed wireless markets in Austria, Germany and Ireland to consolidate from four to three network operators.

At the same time, Liberty Global was allowed to buy Ziggo in the Netherlands, making it the only cable operator and giving it extra firepower against former state telecoms monopoly KPN (KPN.AS).

Regulation in the German cable market, however, has been stricter. Just two years ago Kabel Deutschland withdrew an offer for eastern German cable operator Tele Columbus (TC1n.DE) after regulatory obstacles.

Maria Rua Aguete, an analyst at research firm IHS, said the environment may change in Germany too.

"Europe is in favour of infrastructure competition. Deutsche Telekom has a big infrastructure in Germany so it will make sense to have a cable one," she said.

Germany has 29.6 million Internet broadband connections, of which 23.3 million are via telephone lines. More than half of those are controlled by Deutsche Telekom. Cable operators account for 5.9 million Internet broadband connections.

(Editing by Mark Potter)