01 October 2004

As the financial resurrection of European cable TV continues, at the operating level there is an increasingly honed focus on how to attract and keep subscribers. This certainly seems to be the mantra in Flanders, where the local cable TV operator has posted some successes with interesting new services. The success of Telenet is attracting the interest of one of the world's biggest cable players, John Malone.

In late 2003 Telenet had the distinction of being the first European cable TV operator to successfully tap the financial markets since the wave of defaults that rocked the business in 2001-02. With its balance sheet in better shape thanks to raising about $1bn in bonds and paying down a third of its debt, the company has built on its phone and broadband services, and has launched an interactive TV trial that it hopes could change the way consumers perceive paying for TV services.

Telenet's CEO Duco Sickinghe calls it a "Minitel approach" to selling more TV. The company has carved out a co-operation model with local broadcasters that offers them a platform to launch enhanced services. Instead of a straight carriage fee, the idea is for broadcasters to get a revenue share from the services used by consumers.

The model does have echoes of France Télécom's rollout of Minitel in the 1980s but a more up-to-date comparison is with NTT Docomo's i-mode mobile multimedia project in Japan. Here, content providers kept the lion's share of revenue from mobile users, giving only a small portion to the platform provider, NTT Docomo. The idea was to grow the usage of the platform by offering an abundance of content and it worked.

Sickinghe has taken the better part of 18 months to get broadcasters in Flanders to agree to a 300-home trial of Telenet's so-called idTV project. Launched in May, the early results are good: Telenet hopes to roll it out to the majority of its TV subs in 2005.

Sickinghe concluded that Telenet could not afford to be selfish about how much revenue it earned from selling premium or tailored content. In a market where most people only watch the five terrestrial channels, the approach of offering 30 or 40 channels as a premium tier has not proved attractive.

Besides the idTV trial, Telenet is also pushing its broadband and telephony services. In the first half of this year it added 110,000 broadband subs. In April the company recognised that it needed an entry-level product and launched "Comfortnet", a slower speed, lower spec broadband service.

Telephony subs have also increased, up 19% over last year, to 275,000 users. And Telenet also has its own broadband TV offering, serving about 60,000 customers. Sickinghe sees that the future is going to be about different levels of service, at different price points for telephone and internet-delivered services.

Today in Belgium there are restrictions on how Telenet can bundle its different services to customers, but as IP becomes the standard for the delivery of all services, voice calls will, for example, become an option of a broadband service and there are no restrictions against bundling broadband options, which would put Telenet in a better competitive position vis-à-vis incumbent Belgacom.

The idea is that as the European telcos move into TV, the cable guys will start moving in on the telephone companies' traditional turf, but at a much cheaper price point using VOIP. Telenet launched VOIP in July and sees it as an important way to leverage its network. Other products familiar to telephone providers are Wi-Fi hotspots, which Telenet is building using its cable network, both for home and public hot spot services. Sickinghe sees the ability to offer mobile solutions for his customers using dual-mode phones that sense the nearest network.

So how does Telenet fit into the bigger European cable picture? In September John Malone decided to bail out of UK cable company Telewest, further confirming that his Denver-based Liberty Media International is concentrating on continental European cable, primarily through its UGC unit. Recently Liberty Media International has been taking a leading role in the restructuring of Cable Partners, the entity headed by Dick Callahan that owns a 28% stake in Telenet and also has options that could increase that stake to some 43%.

Cable Partners has never really recovered from its financially disastrous moves into the German cable TV market, where it lost its Ish cable system in late 2002. Liberty's interest in the current restructuring at Cable Partners is clearly all about securing the stake in Telenet, either folding it into UGC or perhaps keeping it separate and helping steer an IPO of the company at some stage down the line.