Providence holds key to internet revolution

Listen to this article

00:00
00:00

Not long ago, Deutsche Telekom warned the German government that, unless its planned ultra-fast internet network was exempt from burdensome telecoms regulation, the country risked being cut off from the “triple-play” revolution. This involves getting television, phone and internet services down a single cable.

Cable operators had failed to seize the opportunity and if the government would not allow Telekom to launch a service – without obliging it to open its network to all and sundry – then clearly Germans were never going to be offered the economic benefits of triple-play.

Now, it seems, a US private equity group is intent on proving Telekom wrong. Providence Equity is buying out Kabel Deutschland, the cable-TV provider it already partly owned, and backing a €500m investment in triple-play.

Until now, Germany’s cable-TV providers have dithered while operators abroad upgraded their networks to allow the two-way information flow the internet demands. But if Kabel Deutschland hooks up 7.5m households by spring 2007 as promised, it can make up for some of the delay.

Ironically, this could eventually benefit Deutsche Telekom. With the prospect of a rival on its doorstep, it can now argue that Berlin should copy Washington, which allowed US telecoms companies to make regulation-free internet investments, in order to break the dominance of the cable-TV providers over triple-play.

Union business

Bernard Thibault, head of the communist-backed CGT union in France, is on a charm offensive. But apparently not with his grassroots members, where his support ahead of next year’s election appears to be fragmenting. Instead this week he launched a campaign to win over France’s smaller and medium-sized enterprises.

At a debate with members of Croissance Plus, the lobby group for French entrepreneurs, Mr Thibault toppled some sacred cows. First, he admitted that French unions were no longer representative. Then, that he was not in principle opposed to reforming France’s controversial wealth tax. Finally, he even confessed that he was “not alarmed” by corporate profit. The comment is important enough in a country where record corporate profits are greeted with public outrage and government criticism.

Mr Thibault, who has tried to lead the union away from a strategy of confrontation to one of negotiation, is taking a big risk ahead of the CGT election next year. Several times in recent months he has been defied by his party members, not least in their rejection of the European constitution.

Could it be that Mr Thibault was actually playing a clever double game? He has won credit for appearing to be the kind of guy business leaders can do business with, without actually giving much away. But equally he has bolstered the position of Croissance Plus by describing it as the real representative of France’s vast community of smaller businesses.

His comments clearly cast doubt on the legitimacy of Medef, the country’s powerful employers’ federation, to speak for French industry. If he succeeds in unsettling the CGT’s long-time sparring partner by developing a better rapport with its smaller rival, that could well help his chances next spring.

Smart move

When Texas Pacific Group, the US private equity house, paid €425m for a minority stake in France’s Gemplus five years ago, it was accused of being in cahoots with the CIA.

Today it holds a 25 per cent stake in the smartcard and encryption specialist and no one is talking about international spies. Instead, Texas Pacific’s support will allow Gemplus to merge with smaller French rival Axalto to create Gemalto, a world leader in the smartcard market.

Texas Pacific’s enthusiastic support looks like a smart card to play. Both companies are facing fierce competition from China and the unparalleled scale which the combination will create will help.

In new, high-margin areas too, such as the nascent market for biometric passports, Gemalto’s proposed increase in research and development spending should give it an advantage.

If successful, the merger should help improve the performance of Texas Pacific’s investment, which has had to endure first the spy allegations and then effects of the dotcom downturn. But it may have have to deliver a big improvement to convince Texas Pacific to stay in Gemalto. It’s Gemplus stake has been up for sale for some time, and the prospect that it might still want to sell its 14 per cent stake in the new company is likely to cast a shadow over the shares for a while.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.