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Cable Technology Feature Article

June 18, 2014

Telefonica and AT&T Have Similar Video, Fiber Access Strategies: AT&T Gets Criticized, Telefonica Doesn't

By Gary Kim, Contributing Editor

Telefonica (News - Alert) has offered 725 million Euros ($1 billion) for a controlling stake in the Spanish subscription TV assets owned by Distribuidora de Television Digital (DTS (News - Alert)).

Telefonica already owns 22 percent of DTS, which in turn is the largest multichannel video services supplier in Spain, using the Canal+ brand. But the additional bid would give Telefonica complete control.

At least as nearly as I can tell, the proposed purchase has not elicited concern on the part of equity analysts that Telefonica is making a strategic mistake by increasing its ownership of subscription television assets, as AT&T (News - Alert) also is trying to do with its acquisition of DirecTV.

Both firms have committed to a quadruple-play strategy that allows each firm to bundle key consumer services including mobile service (voice, messaging and mobile Internet access), video entertainment, fixed network voice and fixed network high speed Internet access.

It has been argued that AT&T should, instead, invest more heavily in its fixed network high speed access capabilities. The same argument might be made for Telefonica in Spain.

But there is a difference. Telefonica in Spain has a different approach to fixed network infrastructure.

Telefonica shares riser access in Spanish high-rise apartment buildings or commercial buildings (multiple dwelling units and commercial properties) with competitors Vodafone and Orange (News - Alert).

On the other hand, Telefonica and Vodafone-Orange fiber to home access networks remain separate.

That means “riser” and “premises wiring” in MDUs are not a competitive advantage for any of the firms.

But the important access networks operated by Telefonica and its competitors remain separate (Orange and Vodafone (News - Alert) will have reciprocal access to the each other’s FTTH access networks).

In the access portion of the network, Vodafone and Orange also are sharing the cost of a EUR 1.3 billion (USD 1.3 billion) fiber to the home network covering 50 Spanish cities.

The joint network will pass 800,000 premises by March 2014, increasing to three million by September 2015 and six million by 2017, according to plan.

So Telefonica and AT&T face a similar issue: key competitors are investing in high capacity consumer access lines, so Telefonica and AT&T will have to respond.

But one might argue that both Telefonica and AT&T have chosen to invest capital in video entertainment assets, despite the need to upgrade high speed access lines as well.


Edited by Maurice Nagle

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