7. SOME POTENTIAL TARGETS FOR LIBERTY GLOBAL’S ACQUISITION
7.1.1. Content TV companies
From the end of 2013, the information from major media said that Liberty Global has been talking with Intel about buying Intel’s online pay-TV service under development: OnCue, which is designed to give consumers access to content across TV sets, smart phones and mobile devices. According to Bloomberg, “Liberty Global’s interest creates competition for the advanced set-top box being developed by Intel since at least early 2012.”5 Even though Liberty Global denied the news, Intel’s stock raised a lot around the same period.
Actually, one-cue is a good potential acquisition object for Liberty Global. As we would discuss later, the mobile networking would be another big market for telecommunication industry and OnCue should be an ideal project for Liberty Global to enter into the big market. Even though now it is already impossible for Liberty Global to acquire OnCue because Verizon, another large telecom company, has purchased it. However, the competition for purchase OnCue prove the interest of telecom operators to the content and merge with the content company such as OnCue would help Liberty Global to be more advantageous in the future market.
With more and more telecom company beginning to enter into the content business area, it is good for Liberty Global to consider it and its interest on OnCue shows that it already begins to think this question. Liberty Global can use content company’s tech to augment the reach of its own TV services of Horizon TV and TIVo and gave its peer new competition and at the same reduce on-going deployment cost through consolidation.
At this point, Liberty Global can learn something from the business model of Netflix. With a strategy of growing a large subscription business based on “providing streaming and DVD-by-mail content for one low monthly price” ,Netflix not only change the business model of film and TV renting services from traditional physical domain to new online subscription model but also proves the success of the new model with its fast growth since its emergence .This provide an ideal model for the future development of Liberty Global, which as a telecom operators owns innate advantage compared with Netflix. “For Telcos, frustrated by the lack of revenue being generated by content and interested in working with Hollywood’s studios it highlights an important addressable need of this market.”6 With its own broadband and other service, it is highly possible that the content service would become a superstar of future Liberty Global.
7.1.2. Geographical expansion: South-East Europe
With a future strategy to focus on European market, it is necessary for Liberty Global to look for some unsaturated market in Europe. Compared with Western European countries, where the competition of major players have been already very fierce, the market of southeast European countries are still not that crowd, there it is an ideal place for Liberty Global to enter into.
South-east Europe would become a big market for telecommunication player which wishes to focus its future operation in Europe. With the market of Western Europe becoming more and more statured, the relative immature market of South-east Europe would become an idea market for future expansion. With most of South-east Europe countries joining European Union (EU), their telecommunication markets have been open to major players. Furthermore, because the local telecommunication industry of this area is not developed, according to Ewan Sutherland “This created opportunities for foreign operators to buy stakes in incumbent telecom and to acquire new licenses, in particular spectrum for wireless services. Under EU influence and tutelage, telecommunications policies and regulatory instruments were going to be adopted by parliaments and enforced by regulators in ways that, in time, would approximate to those of the rest of Europe”
Compare with east Europe, South-east Europe is more close to the traditional of EU countries and are more willing to open to EU and makes it less difficult for big telecom operators to do business in these countries. The South East Europe Transnational Cooperation Programme would improve integration and competitiveness in the area and also contribute to the integration process of the non-EU member states into EU. Therefore, this area should an important target in Liberty Global’s future acquisition. In Romania, now there are already big telecom players in the telecom market in this area including Atlas Telecom in France, and actually Liberty Global is already present in this area though its UPC Romania, Focus Sat (also in Romania), it is advisable if it could also acquire Romtelecom to consolidated the local telecom market and compete with other big players. The Bulgaria telecom market is also attractive to foreign investor by its “stable regulatory environment, attracting much foreign investment” Companies including Vivacom, Orbitel, Vestitel, MobilTel are all potential acquisition targets.
7.2. ALTERNATIVES AND OTHER OPTIONS
7.2.1. Be careful of being another Phaethon in business
A very simple conclusion can be reached that John C. Malone and his Liberty Global is now on a fast-speed Chariot, but it is good to remind the tragedy of Phaethon, the spoiled son of Apollo, who taught everyone, should be careful about his uncontrolled passion when driving a coach, especial when it is a dangerous coach. Within just X years, Liberty Global has acquired X companies in European counties including UK, Nederland and XX. And one dangerous thing is that the crazy acquisition just focused business strategy level: nearly all the companies acquired are cable companies. And what’s more, the strategy focuses only on Europe, “where Malone is stockpiling cable assets to create a regional powerhouse.”8 When Liberty Global is moving to Europe, Liberty Global already begin to consider spinoff of its Latin American businesses, which makes up 10 per cent of Liberty Global’s sales and about 6 percent of its subscribers, according to Bloomberg.
The question is that whether it is a feasible and reasonable strategy in the long run. Just as Mike van Dulken said “Europe is a mature market, but an important market”10 This shows the main reason why Liberty Global stake its main capital and future on Europe Market because this market is important. However, it also addressed the risk in Europe market—it is already mature. And according to investigation of European Commission, the telecom industry experienced negative growth in 2011 and 201211.The Western European market is already highly competitive and the market has nearly split up by major players and this is the reason why Liberty Global chose to acquire big players in the market of UK, Nederland and Germany instead of organic growth.
There are still risks in Europe. With the financial and sovereign debt crisis still there in most of western countries, the economic conditions in European is still gloomy. What’s more, the political risk in east and even central European countries is now looms large and should become a big element when Liberty Global thinks about move into these countries. With international relationship between Russian and European Union become stressful day by day, the future project in these countries should be discounted by a big discounted rate, so maybe Malone need to borrow a calculator produced by Texas Instrument from his CFO and see whether the NPV is below zero.
7.2.2. Other business and geographical option
As we have discussed above, big data and Mobile Networking are two opportunities for Liberty Global. Liberty Global has its own advantage in big data era. In the age of big data, the amount and completeness of data owned by telecom operator is far more advantageous than Internet Company. It’s would be good to focus more energy on Mobilenet Working area. According to market investigation made by GfK Temax, because of smartphone sales, the European telecom market experienced a growth of 2.7% in Q4 of 2013 while technical consumer product sales fell in the same period by 3.1%12. Therefore, just as been discussed before, more focusing on the new opportunities would be a more reasonable strategy for Liberty Global instead of obsessing on cable industry.
A B2C internet company could portrait all the purchasing behaviour of a consumer in its website, however, telecom operators can reconstruct more than the point of purchasing with its data. With all the data collected by its channel, telecom operator can show the whole process the consumer choose the website and purchasing life span and therefore the data owned by telecom operator is more comprehensive and holistic, which can be a very big advantage. This advantage determines that Liberty Global can become the most powerful player in the big data era. What it needs to do is to make use and dig into this advantage and find the big opportunities, this would be fulfilled by acquisition or organic development.
And on the other hand, mobile networking should be another potential target for Liberty Global liberty has become aware this trend, and has its own solution: MVNO. “We offer mobile services through a mobile virtual network operator (MVNO) agreement with mobile network operators. We have successful operations in the UK, Belgium and Chile, with other markets catching up.”13 However, this is just the first step, in the future, Liberty Global would need to acquire some OTT companies to enhance its position in this trend and take advantage of first mover and consolidation.
7.2.3. Diversification and continuing pursuing backup
With diversification becoming more and more important, its investment company should play more important role in future strategy. Supported by Mother Company: Liberty Global, Liberty Global Ventures has become a big Venture Capital with various portfolio including in the content, technology, internet and distribution space (please reference Appendix X to see the whole portfolio of Liberty Global Venture). From the venture investment, Liberty Global not only benefited from the effect of diversification but also own the resource of new revenue gains. And it also provides some flexibility for Liberty Global’s business strategy. In the future, it is better for it to enhance and promote the development of Liberty Global Ventures and can even connect it with its MA strategy.
And Liberty Global has advantage from its consolidation capacity and internationalized and scale advantage, “Scale also allows us to create sustainable businesses in a world increasingly dominated by large international media players. The world is changing rapidly, with disruptive technologies and demanding consumers forcing providers to innovate at breakneck speed. For example, with 7,000 cable operators in Europe today, this market still needs further consolidation to compete effectively.”
The main problem of Liberty Global Ventures now is that its portfolio still focuses on cable related companies and on some degree it is affiliated to Mother Company. Two directions should be good options for it in the future: Move into other business area, in the future the Liberty Global Ventures should development into Private Equity instead of merely venture capital so that it can broaden its investment horizon and transfer industry investment into capital and equity investment.
The idea behind Liberty Global’s current strategy which wants to focus on the European market is that they could benefit from the advantages of economies of scale and tax relief through aggressive acquisitions to get more market share. The European market is already mature and it is hard to get more market share even though Liberty Global has economies of scale. What’s more, big competitors such as Vodafone are also a big obstacle for Liberty Global’s future growth in the European market.
On the other hand, other external challenges including OTT, big data and Mobile Networking which are all based on internet would also be the reasons for Liberty Global to reconsider its current strategy. If it does not grab the opportunities of the new technology, the latter will become the threats of Liberty Global because all of these new technologies can be the substitutes to Liberty Global’s main business and the worse news is that the transitional costs for consumers is not that high.
Therefore, the conclusion is that Liberty Global’s current M&A strategy is not the ideal strategy and it need to consider embracing the opportunities given by the new technologies. As a big telecom company, the technology and infrastructure it owned now can be a competitive advantage compared with other market players. The new technology also harbingers the new market and great potential of future growth. Furthermore, Liberty Global’s horizon should not be focused on the mature European market and should be expanded to the market of East and South-east Europe where the market of telecom industry are still not saturated yet.
Note: This is the group work for the course Advanced Corporate Finance in MFM of Vlerick Business School with authors including:Emmanouela Androulaki, Feronia Budiman, Xiaobin Huo, Maxime Meulemeester & Charles Valcke