Vodafone Chief to Use Kabel Deutschland as Hub for Expansion

Vodafone Group Plc (VOD) plans to use Kabel Deutschland Holding AG (KD8), the cable company it bought last year for more than $10 billion, as the “core” of its fixed-line business in Germany and potentially other countries, Chief Executive Officer Vittorio Colao said.

The company, seeking to revive growth, is also targeting new services such as security to expand beyond the wireless business, Colao said today at a press briefing at the CeBIT conference in Hanover, Germany.

“It’s about using Vodafone more and more outside mobile: we’re going into hosting, into security, into protection, into entertainment,” Colao said. “Watch Vodafone Germany because it will always be one to two years ahead of the others.”

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Vodafone’s revenue has started to slip in Germany, its largest market accounting for almost a fifth of sales, after the company said it underinvested in its network and price competition with other carriers cut into revenue. The 7.5 billion-euro ($10.4 billion) purchase of Kabel Deutschland is part of Colao’s campaign to fend off rivals such as Deutsche Telekom AG.

From Hanover, Colao plans to head south tomorrow to the Munich suburb of Unterfoehring, where Kabel Deutschland is based. The company’s CEO Adrian von Hammerstein is set to leave at the end of the month and will be replaced by operating chief Manuel Cubero. Hammerstein became CEO in 2007, leading the company through its 2010 initial public offering and overseeing a quadrupling in the share price, culminating in its acquisition by Vodafone.

European Declines

Colao said he plans to tell Cubero and his team that Kabel Deutschland “will become the core of the fixed-line business in Germany, possibly outside of Germany as well.”

European phone companies are trying to cope with intense competition that’s weighing on phone bills. While Germany hasn’t been hit as hard as some of Vodafone’s other markets -- such as Spain and Italy, where sales fell 14 percent and 17 percent respectively last quarter -- revenue is declining.

After the $130 billion sale of its stake in U.S. company Verizon Wireless, Newbury, England-based Vodafone committed itself to returning to growth in its remaining markets, pledging to pour funds into more advanced Internet and wireless services in its struggling markets in Europe.

Vodafone, which has lost its spot as the top mobile operator in Germany to Deutsche Telekom, reported that mobile-service revenue in the country dropped 8 percent last quarter to 1.56 billion euros. Deutsche Telekom’s revenue fell 1 percent to 1.65 billion euros.

‘Commercial Problems’

“There’s no point in saying that there haven’t been any commercial problems,” Colao said. Colao said in February that the company hadn’t spent enough on Vodafone’s German network overall.

Deutsche Telekom has won customers as it outperformed Vodafone in network-quality surveys. Vodafone came second to the company’s T-Mobile brand in the Connect network quality tests of smartphone and tablet data and last out of the top four carriers for voice quality. Deutsche Telekom, which has an agreement to provide broadband service to Vodafone’s customers, is doubling Internet speeds for 24 million households in the next four years.

Kabel Deutschland, meanwhile, is posting slowing sales growth. The company is expected to report 4 percent revenue increase in the fiscal year ending in March, compared with 8 percent a year earlier, according to data compiled by Bloomberg.

Other Deals

Colao is looking at similar deals across Europe. Vodafone approached Grupo Corporativo Ono SA about acquiring the company last month as the Spanish broadband provider prepares for an IPO of its own, people familiar with the matter have said.

Vodafone increased its offer to buy Ono to about 7 billion euros last week in a meeting with the Spanish company’s key shareholders, people familiar with the matter have said.

When asked today about Vodafone’s interest in the Spanish cable company, Colao said “we’ll see what happens,” declining to comment further.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Cornelius Rahn in Hanover, Germany, via crahn2@bloomberg.net

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

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