Bloomberg News

Telefonica to Expand Deutsche Telekom Fixed-Line Cooperation (1)

May 02, 2013

Telefonica SA’s German division plans to deepen its cooperation with Deutsche Telekom AG (DTE) for fixed- line products as it seeks to reverse a drop in broadband customer numbers and offer bundles for wireless clients.

Telefonica Deutschland Holding AG signed a memorandum of understanding to increase its use of the former German phone monopoly’s infrastructure starting next year, the Munich-based unit said today in a statement. The project, which will be filed for antitrust clearance with Germany’s Federal Cartel Office, would be completed in 2019, it said.

The strategy will help Telefonica Deutschland offer faster speeds to Internet users without having to invest in costly cable deployment itself. Deutsche Telekom would be able to share the expenses of its own rollout. The Bonn-based phone company spends almost 10 billion euros ($13 billion) a year on networks, including wireless and non-German markets.

“Together with our heavy-duty mobile-data network, we will be able to further advance our convergence strategy,” Telefonica Deutschland Chief Executive Officer Rene Schuster said in the statement. The deal will help the operator offer “fixed network products on top of our mobile offerings.”

Cable Competitors

Germany’s fixed-line Internet market is contested among Deutsche Telekom and cable-television network providers Kabel Deutschland Holding AG (KD8) and John Malone’s Liberty Global Inc. (LBTYA:US) Deutsche Telekom, the country’s biggest phone company, won preliminary regulatory backing last month for its plan to narrow the gap with cable providers with so-called vectoring technology.

Telefonica Deutschland rose as much as 0.9 percent to 6.08 euros at 9:33 a.m. in Frankfurt. Deutsche Telekom declined as much as 0.9 percent to 8.90 euros.

As part of the deal announced today, Telefonica Deutschland would use the vectoring technology from Deutsche Telekom. The agreement builds on a contract signed late last year that lets Telefonica offer faster DSL service via Deutsche Telekom’s network. Telefonica also uses fiber-optic cables from Deutsche Telekom to connect wireless towers as it expands so-called long- term evolution, or LTE, technology.

2010 Purchase

Telefonica SA (TEF), which operates the O2 mobile brand in Germany, acquired its fixed-line Internet business in the country in 2010, buying HanseNet Telekommunikation GmbH and its 2.2 million customers from Telecom Italia SpA (TIT) for 900 million euros. Madrid-based Telefonica is considering a sale of the assets to cut debt, people familiar with the discussions said last week.

Telefonica Deutschland’s fixed-line network reaches about 67 percent of German households. Revenue from the business fell 4.4 percent to 1.36 billion euros last year, according to company reports, as the number of broadband customers shrank 8.2 percent to 2.4 million at the end of 2012.

The race to win customers for high-speed Internet access is drawing the interest from non-German companies. Both Liberty Global and Vodafone Group Plc (VOD) have considered acquiring Kabel Deutschland, the country’s biggest cable provider, people familiar with the plans have said.

Telefonica SA Chief Executive Officer Cesar Alierta is reviewing the Spanish company’s assets as he seeks to reduce net debt by 4.3 billion euros this year.

In March, Telefonica agreed to sell its U.K. broadband and fixed-line phone division to British Sky Broadcasting Group Plc (BSY) for as much as 200 million pounds ($309 million). Telefonica said on April 30 that it agreed to sell a 40 percent stake in its Central American assets to closely held Corporacion Multi Inversiones to raise $500 million.

To contact the reporter on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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