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The potential for an AT&T/Time Warner deal in Europe

Vivendi SA's bid to take full control of Telecom Italia SpA demonstrates that marriages between telecom firms and content producers are no new strategy in Europe, in the face of digital upheaval. But for now, few will come close to the scale of AT&T Inc. and Time Warner Inc.'s mega merger.

Liberty Global plc, the largest international cable player that serves 29 million customers, is an obvious contender for such a deal. However, industry observers agree it is equally unlikely to provide Europe's answer to the AT&T-Time Warner merger anytime soon.

It has been a little over a year since speculation re-emerged that Liberty Global was in talks with Vodafone UK to form a £140 billion industry giant. The news came after negotiations between the two parties about a possible swap of assets broke down in September 2015.

A mobile operator would "make sense" for Liberty Global, which dominates the European market in terms of scale, Chris Lewis, founder and managing director of Lewis Insight said in an interview.

However, he was less convinced Vodafone is willing to sell its U.K. network.

The two players had previously combined their Dutch businesses in a joint venture to create the Netherlands' second-largest mobile and cable operator, but failed to reach a deal that would give them a boost in Britain.

"I don't think buying a mobile operator is absolutely imperative right now. They have a reasonably good mobile virtual network operator (MVNO) deal with British Telecom," according to Steve Malcolm, an analyst with independent research firm Arete.

"That said, I think it will become more important over time," he added.

Known for its aggressive M&A activity, Liberty Global is now somewhat of a sleeping giant on track to grow its mobile business organically. But even this is proving difficult.

The company recently announced that lackluster mobile performance in the U.K. and Belgiun markets, coupled with the devaluation of sterling since the EU referendum and price increases across Europe led to an 18.1% year-over-year drop in operating income.

Approximately 13% of Liberty Global's broadband subscribers in Europe have a mobile subscription as of last November. The group said it intended to grow that figure to 30% or 40%, but has yet to specify a timeline.

In what CEO Mike Fries described as a "wake-up call" in the mobile business, the group revised its operating cash flow growth for 2017 to around 5%. The company dropped further hints it would focus on execution rather than M&A.

"There's a reason why we have not bought mobile assets everywhere in Europe because I think that that business is still in transition," Fries admitted in a call.

At the same time, BT's £12.5 billion takeover of operator EE, which closed in January 2016, continues to put pressure on rivals.

Liberty Global will be in need of a solution to counter BT's mobile network presence and strong spectrum position over the next five-to-10 years, Malcolm stressed.

"It's not hurting their business today but it might over time," he explained.

Liberty Global's decision to shy away from ambitious deals is also, in part, due to a hardening approach toward industry mega mergers from EU competition authorities.

"There's a big issue here about regulation and what Brussels will allow… they have been suppressed by regulators," according to Lewis.

He added that, on the other hand, it remains uncertain what British will allow once the U.K. is outside of Brussels control.

But as pressure mounts on Liberty Global to find a solution, consolidation has been underway elsewhere in Europe.

For instance, Altice NV, the cable, telecoms and advertising business controlled by the billionaire Patrick Drahi continues to invest heavily in SFR Group, France's second-largest wireless operator after Orange SA, and the Portuguese assets of Portugal Telecom.

Further afield in the Nordic market, observers believe Kinnevik's recent investment in Sweden's Com Hem could act as a leeway to a tie-up or commercial partnership with Stockholm-headquartered telco Tele2 Sweden further down the line.

For now, Liberty Global maintains a string of content acquisitions under its belt. Its owns a 9.9% stake in ITV Plc, currently the subject of takeover speculation, as well as U.K.-based pay TV operator Virgin Media and Ireland's commercial broadcaster TV3.

But even the content industry faces issues of its own, from concern over Brexit's impact on advertising to the shift in consumer habits toward OTT platforms.

That the operational performance of the cable business in the U.K. continues to underwhelm is the biggest problem Liberty Global is facing, explained Malcolm. Acquiring an operator or cable company could bring synergies and offer an alternative narrative to help deflect attention away from deteriorating organic trends, he said.

"But don't expect a mobile or cable acquisition to reverse those trends anytime soon," Malcolm concluded.