Diminishing organic growth opportunities in the Greek mobile market are prompting operators to look to converged services in order to extract more value from customers. As such, BMI's long-held view has been that mobile network operators would acquire complementary fixed broadband businesses to give them the scale and reach needed to achieve that goal. Reports that Vodafone Hellas is close to increasing its ownership of Hellas Online (HOL) to 76% suggest this view is finally set to play out in 2014.
Online news portal Ekathimerini claims that Vodafone has agreed to buy Intracom Holdings' 57.5% stake in HOL and that the deal will be formally announced very soon. Vodafone already owns 18.5% of the operator, a stake it has held for several years. Minority investors include World Equities Investments Holding (15.5%) and it is believed that Vodafone is working to acquire those parties' shares in the company, a move that would allow it to operationally combine its successful mobile telephony business with HOL's fixed voice, broadband and IPTV operations, creating a credible multi-play alternative to incumbent OTE.
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|Greek ULLs By Operator, 2011-2013|
Greece's independent fixed-line operators have largely failed to establish a significant alternative to OTE, partly due to limited finances, but also due to the significant problems in deploying high-cost infrastructure to sparsely-populated and economically-challenged areas outside Athens. HOL is one of the more successful players, having signed more than 510,000 revenue-generating broadband customers by the end of 2013.
Although it has built its own network, the company is highly dependent on local loops unbundled from the core access network of OTE - it had 518,000 ULLs as of Q413 - a business model that will be challenged by OTE's transition to a next-generation access network (NGAN) based on VDSL technology and the likelihood that unbundling and access costs will rise accordingly. Once owned by Vodafone, the dependence on ULLs will not diminish, but the higher operating costs can be more easily absorbed if mobile is added to the existing multi-play service mix. Vodafone's investments in fibre-optic NGANs and 4G mobile broadband could also be leveraged to deliver a more appealing IPTV service, BMI believes.
Vodafone is also said to be considering acquiring CYTA Hellas from its Cypriot parent, CYTA. The latter is expected to be privatised in the near future and non-core assets divested to help the Cypriot government deal with its international debt crisis. CYTA Hellas operated 313,000 ULLs at the end of 2013. It, too, offers triple-play services although its IPTV service is relatively undeveloped.
Acquiring these two players would give Vodafone access to 831,000 wireline customers, complementing its 4.876mn mobile subscribers and improving its ability to compete with OTE's 7.477mn mobile and 2.852mn retail fixed line customers. Vodafone will also be keen to stay one step ahead of its principal rival in the alternative operator market, WIND Hellas. The latter is thought to have more mobile subscribers than Vodafone - approximately 3.174mn as of Q413 - and recently increased its ownership of fixed-line operator ForthNet, presumably as part of a plan to eventually combine ForthNet (596,000 ULLs) with its own fixed-line business (429,000 ULLs).
Intriguingly, in January 2014, Vodafone acquired 6.5% of ForthNet. At the time, WIND Hellas raised its stake in ForthNet to 33%, but this is far short of the investment needed to block a determined effort by cash-rich Vodafone. WIND Hellas has been owned by creditors and private investors for several years and it is unclear whether it has the resources or the appetite to bid aggressively for ForthNet, even though BMI believes a converged service strategy represents its best defence against OTE and Vodafone.
Vodafone has yet to confirm or deny Ekathimerini's report, but BMI would not be surprised if the company were to ramp up its exposure to Greece. As the smallest mobile operator and lacking a fixed network of its own, it needs to safeguard its investments in the country. The operator is following a convergence-led expansion programme that has already seen major acquisitions announced in Germany and Spain with similar pushes expected in Italy, Portugal and Greece. Thus, purchasing one or more fixed broadband operators in Greece would be fully in line with that strategy and our long-held views for both the company and its position in the rapidly consolidating European landscape.