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European Cable Focus on Customer Migration

According to Screen Digest, consolidation has been the central theme of the European cable industry during 2005 and 2006. Major market consolidation, leaving a single dominant player, has occurred in Spain, France, Ireland and the UK and progress has been made in consolidating the market in Germany, Scandinavia and Eastern Europe.

While consolidation has been a recurring theme in cable for many years, it has been the emergence of genuine new competition to cable companies and the affront to cable’s key unique selling point -- triple-play -- that has lit the touch paper under the latest round of merger and acquisition.

The stable financial base required for this flurry of activity was set in previous years as major cable groupings underwent restructurings, while private equity companies took the opportunity to buy into the European cable industry at post-tech bubble rockbottom prices.

Many of these private equity groups have recently sought to sell or bolster their position in the European cable markets and have been a driving force behind the last year’s consolidation. Indeed, investment groups like cable specialist Altice One and cable friendly private equity groups like Cinven have been involved in several of the key deals over the last 12 months.

On the competitive front, the march of IPTV, the continued strength of the satellite pay television sector, and the growth of an often free-to-air multichannel alternative to cable television in the form of DTT has spurred the cable industry to strengthen its own position.

But the added competition and the fact that cable television has reached the top of its growth curve in many countries, means that cable companies are heavily focused on increasing their broadband and telephony subscriber base and thus boosting their Revenue Generating Unit (RGU) count -- the sum of TV plus Internet and telephony subscriptions -- through these new service offers and the up-selling of bundled packages to existing cable homes.

But cable also has another trick up its sleeve in that a large portion of the subscriber base in many markets still needs to be converted to digital TV. This means that the focus on cable companies is all about customer migration, pushing customers to take and spend more with the cable supplier. Done right, this is an easier task than acquiring a new customer and means that following the recent consolidation, many cable operators can now demonstrate significant future upside for revenue growth.

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