Spanish cabler ONO set to pump growth

MADRID — An August evening in the Avenida de Burgos, a well-heeled, Madrid inner suburb. Modern, red-brick, eight-story apartments and condo buildings sport dinky yellow satellite TV dishes. But the barrio is ripe for cable.

In Europe, cable TV is usually mature (Holland has 92% penetration) or languishing (French subs grew 1% in 2005 to just 3.6 million homes).

Ireland apart, only Spain saw notable cable TV growth last year, up 12% to 1.3 million homes, but still only a 7% penetration. In fact, pay TV penetration as a whole is just 20% here.

That growth won’t stop. In July 2005, ONO, then a regional telco offering fixed telephony, TV and Internet, bought rival Auna in the biggest European cable merger of the year, paying E2.5 billion ($3.2 billion).

The deal transformed ONO into a key Spanish TV player.

Post-merger franchises include the licenses to operate in 14.8 million homes, 84% of Spanish households. First half sales of $1.07 billion rival Spain’s dominant pay TV leader Sogecable’s $1.1 billion.

ONO has more than 900,000 cable TV customers, nearly half Sogecable’s 2 million. Some 111,000 broadband subs joined ONO in the first six months of the year, bringing ADSL take up to 937,000.

But ONO needs to ramp up its TV and Internet business.

With slowing telephony growth, Spanish telcos’ battle, as elsewhere in Europe, is increasingly fought through content.

Challenging incumbent telco Telefonica, time and technology are on ONO’s side.

ONO has laid 28,000 miles of fiber optic networks. Telefonica can make do with copper wire for broadband TV service Imagenio and also is using fiber optics, anticipating heavier Internet carriage.

“There’s a window of opportunity, possibly for the next two years, where telcos’ current ADSL networks will be competitive. As more and more bandwidth-hungry services like HDTV come online, things will get a little bit more difficult for telcos with existing technology. That’s why they’re looking to more advanced upgrades like ADSL2,” says Screen Digest senior analyst Guy Bisson.

ONO has launched Ojo, a cable TV video-on-demand service. Among other offerings it has a non-exclusive VOD deal with NBC Universal, which means it can run the first season of “House,” a hit in Spain.

But Ojo’s lack of exclusive first-run movie deals with U.S. studios, held by Sogecable, is a problem.

So ONO has to grow or die, upping TV take up to muscle in on content, moving from core cost-conscious districts into more moneyed barrios.

Only 21% of Madrid is cabled. The quiet of Avenida de Burgos could soon be interrupted by cable works.

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