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German cable's game of chicken

www.breakingviews.com

The German cable industry looks like a game of chicken between the private-equity firms that own the cable operators and the competition authority that regulates them.

Ever since the European Commission forced the break-up of Deutsche Telekom's cable business into nine regions in 2000, the two sides have been on a collision course. The cartel office has consistently refused to allow consolidation. And the owners have responded by gearing up and running their businesses for cash.

That's why the latest move to consolidate the industry – the proposed e1.6 billion merger of Ish and Iesy – is so important. The regulator's decision on whether it will allow the deal will signal whether the game of chicken continues or not.

What's needed is for both sides to change tack. The regulator's approach since 2000 has been dogmatic. It refused to allow consolidation on the grounds that it would create dominant players in the German TV market This decision has essentially gifted more than 80% of the emerging market for broadband services to Deutsche Telekom – the state-controlled incumbent phone company. That's hardly a triumph for competition.

The response of the private-equity owners has been to avoid significant investment in broadband and digital TV and to milk their highly cash generative analogue networks.

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