Kabel Deutschland Falls After Vodafone’s Network Deal

Kabel Deutschland Holding AG, Germany’s largest cable operator, fell the most since February after Vodafone Group Plc (VOD) struck a deal to gain access to fast Internet lines, reducing its need to purchase cable assets.

Vodafone expanded its access to Deutsche Telekom AG (DTE)’s fixed-line network in Germany, allowing it to offer Internet speeds of as fast as 50 megabits per second and provide on-demand video and Web-based TV broadcasts, the Newbury, England-based company said today, without giving terms. Speeds will later increase to as much as 100Mbps with new technology.

Vodafone had considered making a bid for Kabel Deutschland to expand services in its biggest market by revenue, though plans for an approach were put on hold after they were reported in the press, people familiar with the matter said in February. While Vodafone will want to own its own cable assets eventually, the deal with Deutsche Telekom buys it time as it adds services in Europe, Sanford C. Bernstein’s Robin Bienenstock said.

“The knee-jerk response is that Vodafone now has a solution and doesn’t need” Kabel Deutschland, the London-based analyst said in an interview. Still, the deal “is a short-term solution for a company like this.”

Kabel Deutschland’s assets cover only part of Germany, so Vodafone would have had to strike a deal with another carrier to fill out its services anyway, Bienenstock said.

Kabel Deutschland fell as much as 4.7 percent to 71.92 euros, the biggest intraday drop since Feb. 27, and traded at 73.38 euros at 11:13 a.m. in Frankfurt. It had risen 33 percent this year before today. Deutsche Telekom added 1.2 percent to 9.89 euros and Vodafone rose 1 percent to 197.1 pence in London.

Sharing Costs

European carriers are increasingly sharing networks to hold costs in check as they combat slowing sales amid an economic slump. Vodafone announced a similar deal with Telefonica SA (TEF)’s Orange in Spain this year as it works to roll out bundles of Internet, voice and TV service to customers across Europe.

German fixed-line Internet operators are trying to fend off competition from cable carriers Kabel Deutschland and John Malone’s Liberty Global Inc. (LBTYA), which offer speeds topping 100 Mbps.

“Our agreement with Deutsche Telekom will greatly enhance our ability to offer our German customers a range of competitive, high-speed broadband and TV services, in addition to our industry-leading mobile services, in line with our broader Europe-wide strategy,” Philipp Humm, Vodafone’s head of Northern Europe, said today in a statement.

Deutsche Telekom, based in Bonn, last month received preliminary approval from the country’s network regulator for its plan to double the speed of its DSL lines to 100 Mbps in 24 million households. Today’s agreement with Vodafone, together with a similar deal with Telefonica Deutschland Holding AG this month, helps the former phone monopoly share the cost of the rollout.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; 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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