Raymond Yu
Freenet to acquire Debitel - uniting Germany's largest service providers
On 27 April 2008, Freenet signed an agreement to acquire Debitel for €1.69bn. Comment: The combined entity of Freenet and Debitel will create a bigger player in the German mobile market, but we don't believe this acquisition will have much impact on the German mobile players or consumers. The German mobile market is mature and fiercely price competitive as a result consolidation has been on the cards, hence such acquisitions are expected. For Freenet, the acquisition stresses its focus on mobile services. Mobile is undoubtedly Freenet's chief service offering, contributing over 63% of its Group revenues (third-party revenues) in 2007, and its other services (broadband, portal, hosting, B2B and narrowband) made up the rest. It is likely that these divisions will be sold off, if a buyer emerges. Debitel certainly increases Freenet's mobile subscriber base, the new entity claims to have 19 million subscribers at the end of 2007, but attaining volumes is not the main issue here. Freenet grew its mobile subscriber base in 2007, but year-on-year mobile revenues declined from €1.33bn to €1.18bn. Hence the main benefit for acquiring Debitel is to realise synergies between both businesses, which should have a positive impact on Freenet's bottom line. The acquisition unites Germany's two largest service providers, but we believe it does little to alleviate price pressures. The German mobile market hosts over 50 MVNOs and sub-brands, many of which are purely competing on price with no-frills and discounted offerings. This fierce price war makes it much harder for MVNOs and sub-brands to compete, especially if they do not have scale. Recent casualties include TeleSim, Auto Mobile and 01051 Mobile and we expect more players to exit over 2008 and 2009.
