Vodafone steps up fight for Liberty deal with German access offer

By Paul Sandle and Douglas Busvine

LONDON/FRANKFURT (Reuters) - Vodafone stepped up its battle to gain regulatory approval for its Liberty Global deal on Tuesday by offering rival Telefonica Deutschland access to its enlarged high-speed broadband network.

The world's No.2 mobile operator agreed a year ago to pay $22 billion for Liberty's cable networks in Germany and central Europe, seeking increased fixed-line heft to better compete with German market leader Deutsche Telekom.

Seeking to increase competition in the German market and defuse criticism of the deal, Vodafone on Tuesday said that Telefonica Deutschland would be able to offer super-fast services over Vodafone and Liberty's Unitymedia cable networks in Germany if the deal is approved.

The networks will cover 23.7 million households and would help Telefonica Deutschland to move up from its distant third position in fixed-line broadband, behind Deutsche and Vodafone.

Telefonica Deutschland Chief Executive Markus Haas said the agreement would enable it to connect millions of additional households in Germany with high-speed internet.

"By adding fast cable connections, we now have access to an extensive infrastructure portfolio and can offer to even more O2 customers attractive broadband products – including internet-based TV with O2 TV – for better value for money," he said.

Telefonica Deutschland has nearly a quarter of the German mobile market, second to Deutsche and ahead of Vodafone, according to a 2018 estimate by VATM, which represents independent telecom firms. But it has long trailed rivals in the fixed-line broadband market, with just 5.9 percent.

U.S.based Liberty Global, which has extensive international operations, has already sold its Austrian business and is now seeking to exit Switzerland as well as Germany and central Europe in what would be its biggest ever divestment.

It had 13 million subscriptions and made revenue of $700 million in Germany in the first quarter of this year.

CEO Mike Fries said in a statement on Monday night he was confident the deal could be completed this summer. "We have crossed a number of key milestones and the European Commission is currently in the final stages of its review," he said.

JULY DECISION

Tuesday's announcement was designed to win over regulators in Brussels who are reviewing the proposed merger with Liberty, before a decision by July 9.

Liberty Global was last year given the green light by Brussels to buy Dutch cable operator Ziggo when it agreed to several conditions over access to its network.

Vodafone and Unitymedia, Liberty's German business, operate in different parts of the country and do not compete head to head. Nick Read, CEO of Vodafone Group, said the deal would be transformational, offering high speeds for consumers and renewed competition in the four markets.

But a merged entity would have a very strong position in cable and broadband, in particular to multi-family apartment blocks, leading competitors to urge regulators to step in and ensure that they also have 'last-mile' access to households.

Deutsche Telekom CEO Tim Hoettges initially clashed with Vodafone's then-CEO Vittorio Colao over the Liberty deal last year, saying it was unacceptable because it would create a cable TV monopoly in Germany.

Hoettges later softened his criticism, instead calling for the regulatory burden to be eased on Deutsche Telekom which is required to open up its German fixed-line network to competitors at controlled prices.

Deutsche Telekom said on Tuesday the Vodafone offer to open its network showed the British company was desperate to keep its deal alive. The proposal would not lead to a single additional broadband cable being laid in Germany, it added, and could even slow work to build out super-fast fibre-optic networks - a government priority.

Jefferies analyst Ulrich Rathe said the offer was only a proposed remedy at this stage, and would still need to be accepted.

"This would improve the ability of mobile-centric Telefonica Deutschland to address convergence tactics by Deutsche Telekom and Vodafone," he said. "For Deutsche Telekom, this spells downside to otherwise expected wholesale revenue from Telefonica."

The European Commission opened a full-scale probe into the deal in December. Sources, however, said last month it had not raised any major concerns about the impact of the deal on Germany's cable market.

Shares in Vodafone rose 1 percent by 1050 GMT, while Telefonica Deutschland gained 2.5 percent. Deutsche Telekom was up almost 1 percent.

(Writing by Kate Holton; Editing by Keith Weir)