(LBTYA) Liberty Global Faces a Setback

Liberty Global Inc. (LBTYA), a leading cable operator in Europe, Latin America, and Australia, has suffered a setback regarding its proposed acquisition of Kabel Baden-Wuerttemberg GmbH & Co KG, the third largest cable operator in Germany. In March 2011, the company won the auction to purchase Kabel Baden for approximately $4.5 billion. The deal was expected to be closed in the second half of 2011 subject to the regulatory approval.

Recently, the European Union regulators decided to refer the case to the German antitrust authority (Cartel Office) to properly investigate the possible harmful effects to the deal. In January 2010, Liberty Global acquired UnityMedia GmbH, the second largest cable operator of Germany. The German antitrust authority already described the merger of large cable operators to be detrimental to the competition in the national cable TV market.

The German regulatory authority believes that the merger of large cable operators  for providing free-Tv services to the housing associations may keep rivals out of the market. The housing associations of Germany negotiates contracts collectively with tenants and these contracts are generally long term (for e.g. 5 years) in nature. Furthermore, the TV channels, which develops contents, may have to pay more to air for their respective programs over the cable networks.

Germany is the fastest growing economy in Europe and its cable TV market is highly lucrative. If Liberty Global gets regulatory approval for Kabel Baden acquisition, then it will become a formidable player in the German cable TV market, offering triple play video, voice and Internet services. The enlarged Liberty Global will manage around 7 million subscribers coming second to Kabel Deutschland GmbH, which manages approximately 9 million subscribers. However, with respect to both revenue and profit, Liberty Global may outpace Kabel Deutschland.

Libert Global’s closest rivals are BT Group plc. (BT), Eutelsat Communications, SES S.A. and CATV Systems. Deployment of high-speed DOCSIS 3.0 network has helped Liberty Global to differentiate its offerings in the industry.

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