Triple play arms race

The past couple of days have given us some signposts for the coming year, suggesting we're going to be seeing a ramp up in M&A and capital raising in 2005, related to content acquisition, industry consolidation, and expansion/acceleration of capex plans, all relating to the ultimate goal of the elusive IP Triple Play:

• Yesterday Liberty Media subsidiary UnitedGlobalCom announced the acquisition of UK-based pay-TV house Zone Vision Networks, which brings UGC control of Reality TV (claiming 125m viewers globally), film channel Europa Europa (6m subs) and entertainment channel Romantica (also 6m viewers). UGC already held 49% in Reality TV, and Zone Vision had already teamed up with Liberty's Japan unit on a local version of Reality TV, so it was practically in the family already.
• This morning Liberty has announced a buyout of UGC minorities, for either $9.58 per share or 0.2155 Liberty Shares, and the newco will be known as Liberty Global. I think this sort of development was inevitable, though it comes sooner than I expected.
• The wires are abuzz this morning with speculation that Tiscali may have a funding shortfall in its business plan (remember it has IP Triple Play aspirations in its major markets) of EUR50 - 100m after it (presumably) makes its EUR250m debt maturities in July. This suggests that the company needs: 1) further disposals; 2) a change in strategy; 3) an equity offering; or, 4) an aquirer.
• Fastweb yesterday dropped a bomb on the market by announcing an EUR800m rights issue to fund its revised strategy, which now focuses on marketing "single-play" DSL lines in an expanded footprint as an upgrade path towards Triple Play over time. The expected short term impacts are significantly higher revenues (40% CAGR over two years vs. 24% under the old plan), slight margin compression, and a near-doubling in capex over the next two years. All of this is aimed at delivering higher absolute revenues (20% above previous plans) and EBITDA in the long term, and the sweetener proposed is that projected dividends under the new plan are EUR1.5bn by 2010, vs. EUR1.0bn previously.

Having pursued a fairly disciplined Triple Play strategy for four years, Fastweb is now changing gears and appears to be going for land-grab, which may ultimately be the right answer, but investors could also be forgiven for thinking that some of this sounds very much like the familiar formula of the bad old days (1999 - 2000) - accelerated capex and acquisitions aimed at delivering higher returns five years out. All of this sounds great, so long as DSL/cable pricing remains stable, alternative access technologies don't drive access pricing points through the floor, and, crucially, people continue to have an interest in paying to watch television.