European Telecom News: German Cable Goes on the Block

Deutsche Telekom AG last week sold some if its cable assets to Callahan Associates International LLC. At least one high yield source said it may be a sign of things to come in terms of future sales from the telecom behemoth.

Deutsche Telekom is selling partial interests in its cable operations to appease European Commission regulators, and to add to its liquidity position for future expansions. The deal last week was for a 55% stake in its North Rhine-Westphalia cable unit.

Terms of the deal were not officially disclosed, but one analyst who is familiar with the company said that U.S.-based Callahan paid the equivalent of about $1,000 per subscriber, and will spend an additional $300 to $400 per sub to upgrade the system in order to offer Internet and digital television services.

U.S. cable operators usually pay in the neighborhood of $3,000 to $4,000 per subscriber. However, German cable operators typically generate less revenue per subscriber, according to a high yield media analyst. Currently, each German customer pays about $15 a month, he said, while subscribers in the U.S. pay nearly $40 a month.

The German company has about 18 million cable subscribers - by way of comparison, dominant U.S. cable operator Charter Communications has about 6 million. So even at the relatively attractive price of $1,000 per sub, that would parlay into about $18 billion in divestitures, probably coming in the next 18 months, sources said. Much of that likely will be financed through high yield debt.

United Pan-Europe Communications was one name that was mentioned as a possible suitor for the cable properties.