Versatel considers mergers and acquisitions

12 Mar 2008

German telco Versatel is mulling an alliance with rivals freenet, United Internet and Telefonica to combat Deutsche Telekom, reports Financial Times Deutschland, quoting Versatel’s CEO. ‘This would create a counterbalance to [Deutsche] Telekom and Vodafone-Arcor,’ Peter Knauer told the newspaper, adding that such an alliance was something to think about in the longer term. First, Versatel would have to acquire more customers. It could achieve this by buying freenet’s DSL broadband business, said the executive.

Germany’s telecoms market is ripe for consolidation as competition between multiple service operators (MSOs) drives prices down. Several providers have bought stakes in one another, with United Internet now owning 25% of Versatel and 10% of MVNO Drillisch. United Internet and Drillisch currently own 20% of freenet via 50/50 holding vehicle MSP. freenet has put its DSL access business up for sale or partnership and is said to be in talks with several interested parties, including Versatel. Knauer said he regarded United Internet’s stake in Versatel as a strictly financial investment and the 25% of German homes passed by Versatel’s infrastructure were of no strategic use to United.

Knauer also mentioned the possibility of building a fibre-to-the-home (FTTH) network. ‘At the end of the day, only FTTH can distinguish our offering from [Deutsche] Telekom’s,’ he said. Most of the incumbent’s last mile connections are still copper. Knauer said he could also imagine buying cable operators, who have an alternative direct connection to customers’ homes. ‘That could make strategic sense for us. That way, we would have a cheaper alternative to the last mile that we have to rent from Telekom,’ he said. However, Versatel has no interest in buying rival QS Communications, as although it has a large network, it does not have enough customers beyond its wholesale business to be useful to Versatel, explained Knauer.