Investors scupper Sunrise expansion plans

Sunrise has cancelled an Extraordinary General Meeting (EGM) to secure acquisition funds to acquire UPC Switzerland after investors rejected the move.

Announced back in February, Liberty Global proudly proclaimed it had offloaded its Swiss business unit, UPC Switzerland, for $6.3 billion. At the time, the acquisition looked expensive, and it now appears the investors aren’t prepared to foot the bill.

“We regret cancelling the EGM,” said Peter Kurer, Chairman of the Board of Directors of Sunrise.

“We have spent a significant amount of time engaging with our shareholders and continue to believe in the compelling strategic and financial rationale of the acquisition.”

To fund the acquisition, Sunrise was attempting to force through a 2.8 billion franc rights issue, though this was opposed by Freenet, Sunrise’s biggest shareholder, as well as several other investors. With the opposition from such weighty investors, the writing was clearly on the wall for the Sunrise management team.

While the deal had already received regulatory approval, the usual stumbling block for consolidation in smaller markets, all the opposition arguments come back to the price of the acquisition.

For Sunrise, this was supposed to be a deal which would allow it to compete on a more level footing with market leader Swisscom. With UPC Switzerland introduced to the mix, Sunrise would have inherited mobile subscribers to boost market share, but also a fixed business unit which passes more than 50% of homes across Switzerland.

Theoretically, the inclusion of such assets would have enabled the business to create an attractive convergence model to challenge the leadership position of Swisscom, but it was too expensive.

Just to put things into perspective, the current market capitalisation of Sunrise is roughly $3.57 billion, less than half of the value of the acquisition. This is not necessarily unusual, though when you look at what is being acquired the numbers start to look a bit suspect.

UPC Switzerland has passed just over 2.35 million homes with its fixed network, roughly 50% of the country’s total households. It has 1.07 million broadband subscribers, and 1.04 million video customers, 599,400 of which are premium. The mobile business currently has 173,400 subscribers.

In the three-months ending June 30, revenues at UPC Switzerland stood at $315 million, a year-on-year decrease of 5.2%. The revenue dip was attributed to poor performance in the fixed business unit, though this might be down to decreased marketing activity as management team cast its eye towards the Sunrise transaction; it isn’t necessarily a dip to read into too much.

Investors clearly do not believe these numbers justify a cheque worth $6.3 billion. Just to put it into context, BT acquired EE for £12.5 billion in 2016 and inherited 30 million mobile subscribers at a very similar ARPU.

For Liberty Global, this would seem to be back to the drawing board. The team is attempting to reduce exposure in Europe, refocusing attention on South America, and this will be a disappointing outcome.

AT&T offloads Puerto Rico and the US Virgin Islands units to Liberty LATAM

Some might suggest this is a knee-jerk reaction to the intentions of an activist investor, though the vulture fund should not be able to claim credit for this one.

AT&T has announced it will sell its wireless and wireline operations in Puerto Rico and the US Virgin Islands to Liberty LATAM for $1.95 billion. The transaction is expected to close in six to nine months, depending on approvals from the FCC and the Department of Justice.

“I’m especially proud of our network and the recent network enhancements that have helped AT&T rank as the fastest network in Puerto Rico,” said Jose J. Davila, AT&T’s GM for the region. “AT&T also has the most coverage on the island, according to Mosaik.

“Our experienced and committed team members will continue to support these operations as we join Liberty Latin America. Liberty Latin America has expressed its commitment to provide high-quality communications services to the people of Puerto Rico and the U.S. Virgin Islands. And we’re confident that it is equally committed to supporting these communities.”

Although pressure is being applied to the AT&T management team by activist investor Elliott Management, this perhaps not a move which would have been seen as attractive. The vulture fund does often approve of asset divestment in the pursuit of increased dividends and a higher share price, but the intricacies of this deal does not add up.

In an open letter to AT&T investors, Elliott Management did call for divestment but only in pursuit of refocusing the business on core activities. In other words, Elliott Management wants AT&T to focus more acutely on connectivity products and services.

Looking at this deal with Liberty LATAM, AT&T is proposing the sale of core connectivity assets but retaining the service and responsibility of FirstNet and DirecTV assets in the region. What is being released and what is being retained does not make sense if this is the influence of Elliott Management. What is more likely is this transaction would have gone ahead irrelevant of outside influences.

“This transaction is a result of our ongoing strategic review of our balance sheet and assets to identify opportunities for monetization,” said AT&T CFO John Stevens.

“But doing so only made sense if we received a fair value from a buyer that is committed to taking this well-run business, with its skilled employees and loyal customer base, and help it thrive. Liberty Latin America has a strong reputation for quality of service, and we believe they have the experience to build on the success of these operations.”

As of June 2019, AT&T’s debt stood at $158 billion, largely thanks to expensive acquisitions in the pursuit of diversification. The team has said it plans to lower its debt by $20 billion over the course of the year. The team now claims to have completed or announced monetization efforts totalling more than $11 billion.

On the other side of the transaction, Liberty LATAM is continuing its quest to reprioritise the business. Following a number of divestments in the European region, the telco has been attempting to gather momentum in the LATAM markets. This is another deal which will improve the position of the firm.

“The combination of AT&T’s leading mobile and wired businesses with Liberty Puerto Rico’s leading high-speed broadband and TV business will create a strong and competitive integrated communications player,” said Balan Nair, CEO of Liberty Latin America.

“At Liberty Latin America, we are focused on investing in digital infrastructure, innovation and 5G networks and on delivering a friendly customer service experience. This transaction is evidence of that, and we are confident that this new combination will be good for our customers and our employees, including those joining us from AT&T.”

Looking at the Liberty LATAM business, the team is certainly not shying away from investments. Aside from this deal, the team also completed the acquisition of the remaining 12.5% of United Telecommunication Services, increasing the presence across several Caribbean islands. In August, the telco also announced aggressive expansion plans for broadband in Chile and was in discussion to acquire Millicom International earlier this year.

Sky and Liberty Global allegedly in talks for full-fibre investment

Sky is reportedly in discussions with Liberty Global to add further fuel to the full-fibre machine which is engulfing the UK at an increasing rapid rate.

After a new company, Liberty Fibre Ltd, was registered with Companies House in the UK last week, parent company Liberty Global has allegedly entered talks with Sky UK to add additional investment to the scheme. According to the Financial Times, with Sky moving away from satellite connectivity for its content proposition, the team are seeking more attractive wholesales terms, with Virgin Media providing a potential alternative.

As it stands, Openreach is the incumbent wholesale partner to Sky. The wholesale giant has enjoyed market dominance in recent years, though numerous ‘alt-nets’ and alternative providers are creating a much more competitive market. Sky is supposedly in talks with Virgin Media to use its fibre network to deliver its broadband and OTT content service, and the creation of another wholesale fibre business would further lessen the dependence on Openreach in the rural locations.

The new company, Liberty Fibre Ltd, will aim to deploy full-fibre networks in locations outside of the main urban areas, the primary focus for the vast majority of network owners. Virgin Media will become the anchor tenant of the network, though should the rumoured discussions continue as planned, Sky would become an investor in the scheme and a second customer.

For Liberty Global, attracting Sky as a customer would be a significant win.

Although it does not own any of its own network assets (fixed or mobile), Sky is one of the most successful broadband providers in the UK. Although Sky has stopped reporting total subscription numbers, most estimates put the total number of broadband customers between 6.2 million and 6.5 million. This would give Sky roughly a 20% market share, even with Virgin Media and second behind BT. Currently, Sky has a fibre penetration of 38%.

The commitment of a heavyweight such as Sky would certainly lesson the financial burden of deploying a fibre network in areas where ROI projections are certainly less attractive than the dense urban environments. The attractiveness of Sky as a customer only increases when you consider the increasingly popular OTT video drive and aggressive fibre broadband marketing campaigns.

Although Sky is still primarily known for being the premium satellite pay-TV content provider in the UK, the OTT proposition, Now TV, is becoming increasingly popular. After being acquired by Comcast, Sky is likely to attract additional advertising revenues from the parent-company to further consolidate an attractive position in the UK.

After years of neglect, the full-fibre market in the UK is gathering momentum very quickly. It is still years behind other nations across the European continent, but the creation of a new fibre wholesale player will add more fuel to the blaze as glass sweeps across the isles. Liberty Fibre Ltd is an interesting idea, and if it can nail Sky as an investor and customer, its prospects will certainly head north.

Vodafone gets the green light from Europe for Liberty Global acquisition

The European Commission has given the all-clear for Vodafone’s €18.4 billion acquisition of Liberty Global’s cable operations in Germany, Hungary, Czech Republic and Romania.

There are of course conditions which Vodafone will have to adhere to, but the telco is now claiming to be Europe’s largest converged operator, with 116.3 million mobile customers, 24.2 million broadband customers and 22.1 million TV customers across 13 European countries.

“With the European Commission’s approval of this transaction, Vodafone transforms into Europe’s largest fully-converged communications operator, accelerating innovation through our gigabit networks and bringing greater benefits to millions of customers in Germany, the Czech Republic, Hungary and Romania,” said Vodafone Group CEO Nick Reid.

“This is a significant step toward enabling truly digital societies for our customers.”

Of course, Vodafone has not got it all its own way. One of the concessions relates to the German market where Vodafone has agreed to open up the cable network to Telefonica Deutschland, allowing the rival to deliver TV and broadband services. Telefonica Deutschland has been discussing ways in which it can enter into new service segments, though this concession will certainly be welcomed by the bean-counters.

On the broadcasting side, Vodafone has also agreed it will not restrict broadcasters from distributing their content also via OTT services. This concession has been designed to counter fears that the newly merged entity would inhibit the growth of OTT services across the various geographies.

Following the approval, Vodafone expects the transaction to be completed by 31 July, though not everyone will be happy with the deal.

Yesterday, credit rating agency S&P entered Vodafone onto its CreditWatch list in a negative capacity, suggesting the firm has been too adventurous on its recent spending spree. This acquisition is deemed as a significant outlay, though the firm is also exposed to several spectrum auctions in key markets, as well as operating in some areas where trading conditions are less than perfect. S&P has said it will downgrade Vodafone to BBB on approval of the deal.

Elsewhere, other analysts have been pointing to negative performance in the stock markets since the introduction of Reid as CEO and the announcement of the Liberty Global transaction. Since these two news snippets hit the headlines, Vodafone’s share price has declined by more than 30%. Vodafone might be more competitive in some European markets now, but it seems some are worried by the financial commitments.

Vodafone Germany tries to placate regulators via wholesale cable deal with Telefónica

Telefónica Deutschland will be able to sell services that run on the combined Vodafone and Unitymedia cable network in Germany, as a remedy measure taken by Vodafone to satisfy EU’s competition concern over its proposed acquisition of Liberty Global.

The two companies announced that they have entered into a definite “cable wholesale agreement” in Germany, whereby Telefónica Deutschland will offer its customers broadband services that use both the Vodafone fixed network and that of Unitymedia. The combined networks cover 23.7 million households and represent a significant upgrade to whatever Telefónica Deutschland customers are currently getting.

“The cable agreement will enable us to connect millions of additional households in Germany with high-speed internet in the future,” said Markus Haas, CEO of Telefónica Deutschland. “By adding fast cable connections, we now have access to an extensive infrastructure portfolio and can offer to even more O2 customers attractive broadband products – including internet-based TV with O2 TV – for better value for money.”

Vodafone’s plan to acquire Liberty Global in Germany (where it trades under the brand Unitymedia), the Czech Republic, Hungary, and Romania, has run into difficulty at the European Union, which raised competition concerns at the end of last year. The Commission was particularly worried that the combined business would deprive the consumers in Germany of access to high speed internet access, and the OTT services carried over it. Vodafone expressed its confidence that it would be able to satisfy the Commission’s demand. Opening its fixed internet access to its competitor is clearly one of the remedies. Also included in the remedy package Vodafone submitted to the Commission was its commitment to ensure sufficient capacity is available for OTT TV distribution.

“Our deal with Liberty Global is transformational in many ways. It is a significant step towards a Gigabit society, which will enable consumers & businesses to access the world of content & digital services at high speeds. It also creates a converged national challenger in four important European countries, bringing innovation & greater choice,” said Nick Read, CEO of Vodafone Group. “We are very pleased to announce today our cable wholesale access agreement with Telefonica DE, enabling them to bring faster broadband speeds to their customers and further enhancing infrastructure competition across Germany.”

Vodafone believed the remedial measures it put in place should sufficiently reassure the Commission that competitions will not suffer after its acquisition of Liberty Global. The company now expects the Commission to undertake market testing of the remedy package it submitted, and to give the greenlight to the acquisition deal covering the four countries by July 2019. It plans to complete the transaction by the end of July. The merger between Vodafone’s and Liberty Global’s operation in The Netherlands was approved by the EU in 2016.

Vodafone not bothered by EC objections to Liberty Global deal

The European Commission has apparently notified Vodafone of some concerns it needs to be addressed before it will approve its acquisition of Liberty Global assets.

The acquisition was announced almost a year ago but such is the way of these things that the EC has only just got around to flagging up its issues with it now. The objections haven’t been published but they have been widely reported and are presumably not a million miles away from those flagged up at the end of last year.

Anyway it doesn’t seem to have thrown Vodafone out of its stride at all and it issued the following statement. “The Commission’s Statement of Objections is an expected part of the review process. We will review the Statement and continue our constructive dialogue with the Commission.

“This is a significant, pan-European transaction that will create a fully-converged national challenger in four European markets, and we remain confident that the Commission will recognise that it will deliver considerable benefits for consumers and competition. We still expect to receive final approval in the middle of this year.”

Reading between the lines this seems to be Vodafone saying “we got this”. Being given a bunch of hoops to jump through was always going to be an inevitable part of this process and it’s probably a relief to have finally received them. Vodafone will now spend a couple of months chatting to the EC to make sure all its objections are properly addressed, with its fingers crossed throughout.

Liberty Global offloads Swiss business for $6.3 billion

Liberty Global has continued its great withdraw from the European markets with another sale, this time convincing Sunrise its 1 million Swiss customers are worth $6.3 billion.

Announcing the deal alongside its financial results, it does look to be a good deal for Liberty Global. This is a business which has been going through somewhat of a restructure, attempting to find profit in a challenging industry by refocusing resources, though it now appears the years of aggressive acquisitions and expansion have not paid off.

“The past fourteen months have been transformational for Liberty Global,” said CEO Mike Fries. “After two decades of buying, building and growing world-class cable operations in Europe, we have announced or completed transactions in six of our twelve markets at premium valuations.”

While $6.3 billion certainly pales in comparison to some of the mega-acquisitions we’ve seen in recent years, it might be worth putting a bit of context around this transaction.

UPC Switzerland has passed just over 2.3 million homes across the country, this is more than 50% of Swiss homes, currently commanding a subscriber base of 1.1 million. The video offering currently has a subscriber base of just over 1 million subscribers (645,000 of which are premium) and mobile subscriptions total 146,000.

Whether these figures justify the $6.3 billion which Sunrise is handing over we’ll let you decide, though just as a point of comparison BT bought EE, and its 30 million mobile subscribers, for £12.5 billion in 2014.

For Sunrise, such an acquisition will add buoyancy to already positive momentum. Over the last three months, Sunrise realised 42,300 postpaid net adds, UPC Switzerland was 8,500 by comparison, while Internet and TV subscribers rose by 8.3% and 14.1% year-on-year respectively.

Liberty LATAM bails out of convergence ambitions

Liberty Latin America has terminated its conversations regarding a potential acquisition of Millicom International.

Details are relatively thin on the ground, though the pair has been in discussions over a possible acquisition which would have made Liberty LATAM the largest convergence player in the Americas. What this means for the Liberty business, which has targeted growth in Latin America in recent years, remains to be seen.

“The Company remains focused on its growth strategy to deliver value for shareholders and provide market leading products and services to its customers,” Liberty said in a statement.

The acquisition talks only emerged in the last couple of weeks, though it would have been a complete takeover from Liberty Latin America. While the Liberty business is certainly in a stable position in the region, competitors have bought into the convergence buzz in recent years, with Telefonica and America Movil offering what would be considered in today’s terms as a more complete connectivity offering.

Operating in 21 countries across Latin America and the Caribbean, Liberty offers consumer and B2B cable and fixed internet services, as well as operating a subsea cable network. On the other side of the coin, Millicom commands mobile operations in eight markets, in most of which it is a market share leader. Theoretically, there was a very handy dovetail between the pair.

Latin America is certainly a market which can offer significant rewards, albeit there are notable risks as well, but it seems the convergence dream was a short-lived dalliance for Liberty LATAM. At least for the moment.

UK shines for Liberty Global in Q3

The UK market proved to a be a success over the last three months for Liberty Global, though the same could not be said for the Belgium and Swiss operations.

Total revenues for the quarter stood at $2.9 billion, a 1.3% increase, with the UK business posting 3.6% growth. While this might sound positive, this is compared to 10.8% for the nine months of 2018 proving there is appetite in the UK for a full-fibre diet. Unfortunately, the success could not be replicated elsewhere, with the Belgium business dropping year-on-year revenues by 1.5% and the bottom falling out of the Swiss bucket with a 8.1% decrease.

“The Swiss market remains challenging but we have a number of initiatives that we believe will improve performance,” said CEO Mike Fries. “Our turnaround plan is underpinned by revamped video products, a refreshed MySports programming line-up, the launch of 1 Gig broadband speeds and a new and improved MVNO offering.

“The continued operating and financial momentum at Virgin Media helped fuel our Q3 results. With respect to our U.K. subscriber growth, we generated over 100,000 net additions, which represents a record third quarter performance. This achievement was supported by strong volume growth in both our Project Lightning and legacy footprints.”

Looking specifically at the UK business, cable revenues declined by 0.7% year-on-year to $2 billion, while mobile revenue increased 2.4% to $416 million and enterprise revenues were up 6.1% year-over-year to $491 million. Operating income decreased 4.8% year-over-year to $592 million, though with promising growth on the top-line, and an additional 109,000 subscribers to account for, overall you could say a good three month’s work.

With Liberty Global still on course to dispose of its businesses in Germany and Central Europe to Vodafone, the team might be able to turn more attention to the troublesome Belgians and Swiss.

Liberty Global throws weight behind G.hn standard to bolster wifi game

Liberty Global is the latest telco to join the HomeGrid Forum, having already deployed a G.hn wifi extender solution to improve connectivity in the home.

The wifi extender, which has been deployed in some Liberty Global subsidiaries since 2015 including Telenet in Belgium and Virgin Media in the UK, delivers improved wifi speeds in rooms far away from the residential gateway, with the G.hn standard claiming the praise. In the HomeGrid Forum, Liberty Global is joining dozens of other organizations, including the likes of China Telecom, BT and AT&T.

“Industry collaboration is an important component within the Alliance and Liberty Global are true innovators in investing in and enabling seamless home-networking technology,” said Dr. Len Dauphinee, HomeGrid Forum President. “Liberty Global is a major provider of home networking and we are delighted to welcome them to HomeGrid Forum as we continue to move towards a smart connectivity future.”

“Liberty Global is delighted to be working with HomeGrid Forum and supporting the progress of G.hn technology,” said Peter Joyce, Director of Connectivity CPE Architecture at Liberty Global. “We look forward to working closely with HomeGrid Forum and improving the future of home networking for our customers.”

While wifi has been a consistent part of the connectivity world, it is often overlooked. Frustrations for consumers still persist when it comes to breadth of coverage throughout the home and also weak signal in rooms which are furthest away from the router. This is one of the issues the G.hn standard looks to address.

G.hn is a specification for home networking with data rates up to 2 Gbit/s and operation over four types of legacy wires: telephone wiring, coaxial cables, power lines and plastic optical fiber. A single G.hn semiconductor device is able to network over any of the supported home wire types. Aside from the telcos, the HomeGrid Forum (the non-profit trade group promoting G.hn) also counts the likes of Echostar and Panasonic as members.