Belgium Could Signal Liberty’s Change of Heart
Liberty Global has agreed to acquire Belgian wireless operator BASE
Liberty Global is finally dipping a toe into mobile. That means one of the last holdouts is succumbing to the lure of convergence.
The cable conglomerate’s Belgium subsidiary Telenet Group on Monday agreed to acquire the nation’s third largest wireless operator BASE Company from Royal KPN. If completed, the transaction would be Liberty Global’s first major mobile asset purchase in Europe.
As early as last year, Liberty chief executive Mike Fries suggested that the highly competitive environment for mobile companies made acquisitions in that sector unattractive. But the company’s long-held view that it could better compete as a mobile virtual network operator (MVNO)—which piggybacks on other companies’ networks to offer wireless services—is evidently changing. At least in Belgium, Liberty now wants to own mobile assets and is willing to pay a healthy price for the privilege.
Under the terms of the €1.3 billion ($1.4 billion) deal, BASE is valued at about 8 times estimated 2015 earnings before interest, taxes, depreciation and amortization. This is in line with the sector, though slightly more than analysts thought the business would fetch. Citi estimates that cost savings, mainly from MVNO payments, could add 13% to Telenet’s free cash flow: Expected savings of about €150 million are nearly double the estimated €80 million that Telenet might have to pay rival Mobistar annually to continue using the latter’s network.
Telenet’s contract with Mobistar is ending, and any new agreement would likely involve an increase in fees. Furthermore, data usage among customers is growing rapidly, making it increasingly expensive for virtual operators who often can’t recover the additional costs. The same factors that led Liberty to buy mobile assets in Belgium may become more apparent elsewhere in Europe. Liberty also operates MVNO partnerships in other major markets including the U.K., Germany and the Netherlands.
For now, the company says it will continue to focus on existing setup. But that could change as mobile network arrangements become less profitable for virtual operators, particularly in the more advanced 4G services. Under such circumstances, Liberty may be pushed to build or, more likely, buy additional wireless assets. The volte-face in Belgium could be an indication of a more seismic continental shift.