Liberty Global and Telenet: owner occupied

Sometimes you just want to stop renting and own your own place. It could be a question of cost or the desire for permanence. Liberty Global, the US listed European cable group, pays rent - to wireless network operators. It does so it can offer mobile packages to its cable customers. Its Belgian subsidiary, Telenet, has decided it wants a network of its own. On Monday, it announced it would acquire Base, the number three mobile operator in Belgium, from KPN of the Netherlands for €1.3bn. That an ambitious, acquisitive company like Liberty is taking mobile more seriously should make carriers in adjacent markets sweat.

Telenet has already taken share in Belgium by renting capacity from other operators, particularly Mobistar. Adding Base will increase its share to 27 per cent. Mobistar generates a fifth of its earnings before interest, tax, depreciation and amortisation from renting capacity to Telenet, according to Citi. Mobistar's investors did not take news of the deal well. Its shares, already falling since early March, lost another 12 per cent on Monday.

Telenet will pay over eight times this year's estimated ebitda for Base - an operator with monthly revenue per user (€15) at least a quarter below that of its main competitors. Not exactly cheap, unless Telenet can convince Base's pre-paid customers to switch to pricier contracts, and cut out €145m of operating costs. If it can do both the price falls to five times ebitda, below Mobistar's six times.

More important is what this move says about Liberty Global's strategy, and its impact on its competitors in mobile. No doubt Mobistar will fight to retain some of the Telenet business. Liberty could buy mobile networks elsewhere, too. It operates in twelve European markets, offering mobile in over half of these. It has pushed into the Netherlands, Austria and Ireland, and Switzerland - not to mention the UK with Virgin.

If Liberty does commit more capital to its mobile operations, it would likely intensify competition in these markets. In most of its markets, mobile service revenue has, in recent quarters, shown signs of reversing years of annual declines. Another well capitalised mobile operator could slow that recovery.

Ownership brings certain privileges. In Liberty's case, one privilege could be making the neighbours lives difficult.

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