Liberty Global Bags Kabel BW

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Liberty Global Inc. (NasdaqGS:LBTYA - News), a leading global cable TV and diversified broadband services provider, recently acquired Kabel Baden-Wuerttemberg GmbH & Co KG, the third largest cable operator in Germany. After taking a long-time to make up its mind, German antitrust authority (Cartel Office) has finally taken a decision in favor of Liberty Global. In March 2011, the company won the auction and purchased Kabel Baden-Wuerttemberg for approximately $4.2 billion. Earlier, in January 2010, Liberty Global acquired UnityMedia GmbH, the second largest cable operator of Germany.

However, in June 2011, the European Union regulators decided to refer the case to the Cartel Office for properly investigating the possible harmful effects of the deal. Earlier, the German antitrust authority has described the merger of large cable operators to be detrimental to the competition in the national cable TV market. It believes that the merger of large cable operators may keep rivals out of the market for providing free-TV services to the housing associations. 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, who develops contents, may have to pay more to air for their respective programs over the cable networks.

In an interesting decision, the Cartel Office announced that it has granted the acquisition proposal due to far reaching consequences. Liberty Global remains committed to allow its competitors to bid for long-term contracts with residential property companies while discarding other contractual rights including the basic encryption of digital free TV channels. The Cartel Office thinks these concessions will offest the negative effects of the consolidation of cable TV market in Germany.

Germany is the fastest growing economy in Europe and its cable TV market is highly lucrative. Currently, Liberty Global is a formidable player in this 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 12 million subscribers. However, with respect to both revenue and profit, Liberty Global may outpace Kabel Deutschland with an annual revenue run rate of about $2.1 billion.

Deployment of high-speed DOCSIS 3.0 network has helped Liberty Global to differentiate its offerings in the industry. With DOCSIS 3.0, the company can now offer speed compared with other large European cable operators, such as Virgin Media Inc. (NasdaqGS:VMED - News) and BT Group plc. (NYSE:BT - News). Management has decided to deploy EuroDOCSIS 3.0 in the range of 80%-90% of all UPC broadband divisions in Western, Central, and Eastern Europe. The company is also conducting DOCSIS 3.0 trial runs in Belgium.

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