Author(s): Paolo Pescatore
From my recent meeting with the CEO of Liberty Global, Michael Fries, it became apparent that the company's two strategic priorities are content and connectivity. Of course, connectivity is at the heart of Liberty Global given its extensive cable services in Europe. Its broadband networks currently extend to 56 million homes and will be capable of reaching speeds of over 1 Gbps. In the next four years, Liberty Global aims to expand its services to an additional 10 million homes.
Mr Fries' passion for content was immediately apparent, and this is an area where Liberty Global shows promise. I've long stated that the company needs more content and it is finally starting to deliver by investing $2.5 billion in content each year (see Instant Insight: Liberty Global Results, 1Q16). Over the past couple of years Liberty Global has made various investments in companies such as All3Media, Formula E, ITV, Lionsgate and SBS, and it has also partnered with Netflix and Discovery. Recently, Liberty Global announced a deal with All3Media for four major original drama series. It's evident that the company is taking a sensible financial approach by working with partners to produce exclusive original content for its customers.
I'm sure rumours will continue to link Liberty Global with mobile operators in the UK, such as O2 or Three. However, the company has already spent a huge amount buying Virgin Media and continues to invest in its cable network services. Earlier in 2016, Liberty Global acquired Belgian operator Base for €1.35 billion, but for now seems more focussed on offering mobile services as a virtual network operator. Virgin Media has yet to offer LTE services, hampering its ability to compete in a cutthroat SIM-only market. Additionally, any acquisition would require significant long-term investment in spectrum and network roll-out. Nevertheless, a merger with Three would certainly be feasible in line with CK Hutchison's deal with Wind in Italy, and could receive regulatory approval, given that BT's acquisition of EE was also formally ratified.
However, I still have some concerns about Liberty Global's strategy. Consolidation of the company's European cable market has been costly and Liberty Global is not making the most of its cross-selling opportunities to existing customers. By placing greater focus on mobile connectivity and on content Liberty Global can differentiate its offerings in all markets. The company could also consider moves in 4K, the Internet of things and virtual reality — areas in which many of its rivals are stepping up their efforts. These areas represent an opportunity for the company to exploit its extensive cable network to drive traffic and, more importantly, revenue.
Speaking with Mr Fries, it became evident that Liberty Global has more deals in the pipeline so we'll be watching this space. At the same time, as CCS Insight prepares to set out its predictions for 2017 and beyond, I took the opportunity to discuss with Mr Fries some of my earlier predictions in multiplay, including a possible acquisition of Sky by Vodafone, and my forecast that BT will buy ITV within the next few years.