Vodafone Acquires Deutsche Telekom's Spanish Unit

Europe's leading telecoms group by revenue, Deutsche Telekom, sold its Spanish unit, Ya.com, to Vodafone, according to a report in the Spanish daily, Expansion. Vodafone, which operates Spain's number-two mobile operator, offered between 400-500 million euro for Ya.com, surpassing a rival bid from France Telecom's mobile group, Orange. Vodafone still needs to finalise certain terms of the acquisition with Deutsche Telekom.

Deutsche Telekom, which bought Ya.com for about 550 million euro in 2000, decided to dispose of its non-core operations in Spain and France earlier in 2007 due to competitive pressures on its domestic market. At the end of March, several companies expressed interest in buying Ya.com, including Vodafone, Orange and Spain's leading alternative telco, Jazztel (see Spain: 2 April 2007: Deutsche Telekom Shortlists Three Buyers for Spanish Unit and Spain: 8 May 2007: Vodafone, Orange in Stand-Off for Deutsche Telekom's Spanish Unit). In April, the German telco sold its French unit, Club Internet, to local rival Neuf Cegetel. The transaction will be finalised by the end of June this year, pending the approval of French competition authorities. Deutsche Telekom will receive up to 500 million euro for Club Internet, which has 600,000 ADSL subscribers and 400,000 narrowband customers (see France: 16 April 2007: Neuf Cegetel Wins Bidding For Club Internet).

Outlook and Implications

Spanish Broadband Market: Vodafone España announced its plans to enter the dynamic broadband market in October 2006. The acquisition of Ya.com—Spain's fourth-largest broadband provider after Telefónica, Orange and cable operator, Ono—gives Vodafone España access to 400,000 broadband subscribers. In April, Ya.com launched its new IP TV platform, which will enable Vodafone to compete with Telefónica's successful Imagenio service, as well as with Jazztel and Ono's cable TV platform (see Spain: 12 April 2007: Ya.com Launches IP TV). The competition in the Spanish broadband market has been fierce, with operators slashing prices to win customers. The broadband penetration of the population in Spain reached 17.5% at end-2006. Incumbent Telefónica had seven million broadband users in Spain at end-2006, up by 40% year-on-year (y/y). ADSL remains the dominant broadband access technology, but the consolidation in the Spanish cable TV market that followed Ono's acquisition of rival cable TV operator Auna in 2005 positioned Ono as the number-three broadband operator in Spain. Ono had approximately 600,000 broadband customers at end-2006. It also leveraged its market presence through its unbundled local loop (ULL) agreement with incumbent Telefónica, which expanded its cable infrastructure footprint to 9 million from 6 million, out of a total of 14 million households in Spain.

Regulatory Environment: The competition in the Spanish broadband market was triggered by the favourable regulatory environment. Lower wholesale prices have enabled Telefónica's rivals to offer low-price broadband offerings. For example, Orange cut the monthly subscription for its premium ADSL service, offering speeds of up to 20 Mbps, to 30 euro from 36 euro, in January 2007. It also launched two new promotional ADSL packages, priced at 25 and 30 euro, for a 6 Mbps access and unlimited national calls to fixed-line numbers. This undercut a similar product offered by Spain's leading alternative telco, Jazztel, by 25%. Broadband competition from Spanish mobile operators has also intensified. With the growing demand for broadband internet services, there is still huge potential for further growth.