Vodafone Deutschland is likely to lose about two million basic cable subscribers and around €400 million in revenue if planned legislative changes affecting the supply of services to housing associations are implemented, according to an analysis by Jefferies.
According to the analysts, the changes, which would end the current practice whereby housing associations bundle the supply of cable TV and broadband services in as part of mandatory tenancy charges, could result in Vodafone, the country’s largest beneficiary of the rules, losing around two million TV-only MDU subscribers paying an average of €8 a month.
Jefferies’ estimate also assumes that Vodafone would provide a 50% discount on current tenancy charges to retain four million MDU tenants already upsold to cable broadband as well as TV.
Some 8.2 million of Vodafone’s 13.4 million cable TV subscribers are in collective contracts through housing associations. Jefferies estimates that 4.1 million of the company’s 8.15 million cable broadband subs receive basic cable TV through a collective contract.
Jefferies, which nevertheless gives Vodafone a ‘buy’ rating, notes that consensus estimates assume no slowing down in German service revenue growth for the company. However, it adds that this “may reflect Vodafone’s logical incentive not to draw attention to downside risk in the midst of a lobbying effort”.
Jefferies also notes that the proposed change could provide a secondary benefit to Vodafone by enabling it more easily to upsell existing housing association cable TV subscribers to broadband.
While no final decision has been taken, it is believed to be highly likely that the mandatory bundling of cable services will be phased out as a result of lobbying by Deutsche Telekom, which hopes to pick up some of the business that Vodafone may lose.
The plan to phase out the mandatory contracts has been driven at government level by Federal economics minister Peter Altmaier of the CDU party, with support from transport minister Andreas Scheuer of Bavarian sister party the CSU.
The move is not without controversy, not least because the German state still holds a one third stake in Telekom, the chief beneficiary of any change.
Vodafone has enlisted groups representing tenants, other operators and the housing industry to fight the change, which it says would lead to higher chargers for tenants. Currently the absence of acquisition and other costs to Vodafone means it can charge a low fee for collective contracts.
The country’s tenants’ association has previously proposed a compromise whereby tenants who wished not to pay for cable TV could opt out.
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