Telefonica Said to Mull Sale of German Fixed-Line Assets

Telefonica SA is considering a sale of its broadband Internet and phone business in Germany amid a surge in investor interest in European fixed-line assets, according to people familiar with the matter.

The unit, with 2.4 million broadband customers as part of Telefonica Deutschland Holding AG, could be sold to one of its rivals in the country, two of the people said, asking not to be identified because the deliberations are private. The company is also considering sharing its wireless network with another carrier and a full merger with Royal KPN NV’s E-Plus, one of the people said. No decision has been made, the people said.

The business has a value of as much as 2 billion euros ($2.6 billion), including debt, based on prices of similar assets. Interest in fixed-line companies is increasing amid the rising popularity of Web-based video and music services, with Liberty Global Inc. recently buying Virgin Media Inc. in the U.K. and Vodafone Group Plc eyeing a takeover in Germany.

“Usually, someone looking to buy DSL assets would do it mainly to add the customers,” said Stefan Borscheid, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany. “The network itself is typically a bit harder to sell because the potential buyer often already owns a comparable network or would eventually have to upgrade the acquired network to fiber.”

Erasing Losses

Telefonica Deutschland shares erased earlier losses of as much as 2.3 percent, rising 1.4 percent to close at 6.21 euros in Frankfurt. Kabel Deutschland Holding AG, Germany’s biggest cable operator, declined 0.6 percent to 73 euros. Telefonica slipped 0.1 percent to 11.12 euros in Madrid.

An official at Telefonica declined to comment, directing calls to the Spanish company’s German unit.

“We don’t comment on speculation,” said Albert Fetsch, a spokesman for Munich-based Telefonica Deutschland. “The fixed-line business is and will be an important part of our strategy.”

Alexander Leinhos, a Vodafone spokesman, and Kabel Deutschland spokeswoman Insa Calsow declined to comment on whether the companies are interested in the business.

A KPN representative also declined to comment. Chief Executive Officer Eelco Blok reiterated today that there would be “significant value” for its German business to share wireless networks or merge with Telefonica Deutschland.

British Sale

Telefonica CEO Cesar Alierta is reviewing the Madrid-based company’s asset portfolio 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 for as much as 200 million pounds ($309 million).

Telefonica Deutschland’s fixed-line network reaches about 67 percent of German households. Revenue from the wireline 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.

German fixed-broadband operations may be valued lower than those in the U.K. because of a less stable pricing environment, said Guy Peddy, a Macquarie Securities analyst in London. TalkTalk Telecom Group Plc has an enterprise value of about 820 euros per broadband customer. The same price would value Telefonica’s German fixed-line operations at 1.95 billion euros.

Formerly Italian

Germany’s fixed-line Internet market is contested between Deutsche Telekom AG and cable providers Kabel Deutschland and Liberty Global. Germany’s former fixed-line monopoly this month won preliminary regulatory backing for its plan to speed up its infrastructure, putting greater pressure on rivals to invest.

Deutsche Telekom in December agreed to let Telefonica Deutschland use its faster VDSL network to gaining access to 11 million households in Germany.

Telefonica acquired its German fixed-line Internet business in 2010, buying HanseNet Telekommunikation GmbH and its 2.2 million customers from Telecom Italia SpA for 900 million euros. Vodafone paid 474 million euros in 2008 for the remaining 26 percent in Arcor AG, a business with 2.6 million broadband customers at the time.

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