Cable network parlays soccer rights deal

BERLIN — In Germany’s fragmented cable market, Unitymedia has moved to the forefront as the sector’s premiere trailblazer.

Not only has it become telco giant Deutsche Telekom’s biggest rival in the states of North Rhine-Westphalia and Hesse, it also managed to alter the playing field for top league Bundesliga soccer rights, paving the way for greater competition.

Pumped up from a $420 million windfall deal with News Corp. for its stake in pay TV platform Premiere, Unitymedia’s saw its net profit in the first half of the year soar to $72 million, compared with a loss of $118 million in the first six months of 2007, while revenue reached $877.5 million.

Coming down from his high-flying dealmaking, Unitymedia CEO Parm Sandhu has shifted his focus to such basic cable activities as triple-play offerings that bundle digital TV, high-speed Internet and telephony.

Unitymedia saw the number of triple-play subscribers skyrocket 80% to 1.2 million in the second quarter, becoming the group’s strongest growing segment.

A native of Birmingham, England, the ambitious Sandhu is known as tough dealmaker whose business instincts have made him one of the longest serving execs in Germany’s tumultuous media industry.

After outmaneuvering former Premiere topper Georg Kofler and turning a profit from the deal with Rupert Murdoch, Sandhu is now setting his sights on Deutsche Telekom, the partly state-owned behemoth that still dominates Germany’s telecommunications and Internet market and once controlled the country’s entire cable sector.

The feisty Brit has launched a massive strike against the telco giant, with the goal of boosting Unitymedia’s market share in broadband and landline services. In a sign of success, one third of all new broadband customers in the region have signed up with Unitymedia.

“Our marketing spend now is eight times what it was two years ago — just to get a sense of how much we’re focused on sales and marketing,” Sandhu says. He adds that for $44, Unitymedia subscribers get high-speed Internet access, flat-rate telephony and digital TV while Telekom customers pay close to $60 for just Internet and telephone with no digital TV.

Noting the strong link between German politics and the media industry, Sandhu says the country as a whole would benefit if the government more clearly recognized the potential of cable.

“We need more political support in Germany,” he says. “If you look at places like the Netherlands, for example, it has one of the highest penetrations of broadband services in Europe because it has had effective long-term sustainable competition between cable and the telcos from the very beginning, whereas here, the market had been left to Deutsche Telekom from the very beginning and only now is cable being encouraged. The more that can be allowed to happen, the more the overall market will grow and therefore the greater the economic benefits.”

Before joining Hesse cable company Iesy in 2003, Sandhu oversaw strategic acquisitions as finance director in Europe for John Malone’s Liberty Media Intl. and served six years in a number of senior positions at Telewest Communications in the U.K.

Sandhu led Iesy’s takeover of fellow cablers Ish and Tele Columbus in 2005, forming Unitymedia, Germany’s second-biggest cable provider, with a reach of 8.7 million homes in the states of Hesse and North Rhine-Westphalia.

Unitymedia’s strong performance has fueled increasing speculation of a possible initial public offering. Equity investment firms BC Partners and Apollo Management own the company. Sandhu says the shareholders will likely sell their shares at some point, but points out that the current economic climate is not the best for an IPO.

For the time being, Sandhu is concentrating on increasing his subscriber base and pushing digital TV.

“Germany is also behind on digitization of TV. That’s because we have in large part not been allowed to drive an effective digitization program, although in the last few years we have been very consequential in all the initiatives we’ve taken.”

In addition to bringing commercial broadcasters onboard and creating its own pay TV platform, ArenaSat, Unitymedia last year joined forces with regional broadcasting authorities to launch “Go Digital,” a far- reaching campaign to encourage analog subscribers to switch to digital. Of Unitymedia’s approximately 6 million cable households, 1.2 million are already digital.

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