Tony Ball sees ‘industrial logic’ to Vodafone’s €7bn offer

Tony Ball says halcyon days for mobile operators are over

Two weeks ago, Tony Ball, the British media entrepreneur who has quietly helped create a German cable empire at Kabel Deutschland, took a call with an offer from Vodafone chief Vittorio Colao that he could not refuse.

That call, which led to a recommended €7.7bn takeover of Kabel by Vodafone, was not completely out of the blue, Mr Ball admits with a smile, acknowledging the rumours of interest as far back as 2010, when he was working on the flotation of the business.

He was executive chairman of the private equity-owned group in the decade before an IPO in 2010, and has since remained chairman of the listed group.

Mr Ball, who helped create Sky Sports in the 1990s and now sits on the board of BT in the UK, does not expect any problems with the Vodafone offer, which at €87 a share values the company at about €7.7bn.

He says that regulators are likely to look at the deal but he considers the situation to be straightforward, while an improved counter bid from Liberty Global is unlikely.

“There was a bid from Liberty but it didn’t progress,” he says. “They didn’t develop it. There would have been significant regulatory oversight anyway.”

He says there is an “industrial logic” to Vodafone’s acquisition given the need to carry mobile calls on a fixed-line network and the ability to “cross sell” products across the two customer bases.

He plays down analyst fears of a bubble in cable company valuations, although admits that the sector has “gone in and out of fashion over the last two decades” and acknowledges there has been a rerating of cable stocks in the past six months.

This reflects customer numbers that have finally caught up with the infrastructure investment costs, he says, while Vodafone has built its offer price based on projected revenue and cost synergies.

There is also a more fundamental strategic need, he points out, as mobile businesses need to offer more to their customers than just calls. “The real halcyon days for mobile are over. A broader palette has got to be useful.”

He is no fan of the term “quad play” – the bundled offering of four services to customers in mobile, broadband, fixed line and television – which he dismisses as “analyst speak”. But he argues that “it definitely helps retention as it creates a more complex relationship and so guards against churn”.

Sky will probably react with their own offers – they will want to take it to the mat.

The bigger challenge for pay TV operators, particularly in established markets such as the UK, he says, is “seeing what else they can sell to their customers”.

Mr Ball says future growth for BSkyB will “more likely come from additional services”.

Indeed BSkyB, where Mr Ball served as chief executive for four years until 2003, is facing a sharp slowdown in its core pay-TV business, with some analysts estimating it added only 5,000 pay TV customers in the last quarter, its slowest growth in a decade.

This is on top of renewed competition from BT for broadband customers as the telecoms operator invests about £1bn on sports rights, from Premiership football to rugby.

Mr Ball has helped oversee this strategic shift at BT, whereby it plans to offer its new sports channels free to its high-speed internet customers. He says that BT will “develop [additional] content over time”.

BT will not become Sky Sports, however, he says, but would rather use the sport as the carrot to bring customers to its core products in broadband. He points out that this was a “tough thing to do” given the failures of previous attempts by Santana and ESPN. “Before, they were essentially one-trick ponies,” he says.

Even so, he acknowledges the impending battle, given Sky’s own ambitions in using sport to further erode BT’s broadband base. “There will be ferocious competition,” he says. “If I were at Sky that’s what I would do. Sky will probably react with their own offers – they will want to take it to the mat.”

Mr Ball will remain involved in the European cable business, even if his own involvement with Kabel will come to an end with the acquisition by Vodafone.

He indicates that Vodafone is likely to have “wider ambitions” in buying further cable assets. However, as a board member of Ono, the Spanish fixed-line group, Mr Ball refuses to be drawn on whether Mr Colao had also picked up the phone to talk about more business in future.

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