Employees work at an Ono shop in Leganes, near Madrid

Vodafone to buy Spain's largest cable operator

Vodafone has agreed a €7.2bn deal to buy Spain's largest cable operator Ono.

The British group said today that it would use some of the $130bn (£78bn) proceeds from the sale of its US arm to acquire Ono, with a superfast cable network and 1.9 million customers, to create a stronger challenger to market leader Telefonica.

The deal for private equity-owned Ono is Vodafone's third purchase of a European fixed-broadband asset in two years, following similar moves in Britain and Germany, enabling it to offer fixed-line and mobile services, pay-TV and broadband, while saving money on building and operating its networks.

The agreement could also spark more consolidation within Spain as players such as France's Orange seek out acquisitions to avoid falling behind. Orange has been linked with Jazztel, Spain's fourth-biggest telecoms operator, while Yoigo, owned by Sweden's Teliasonera, is also seen as a likely target, analysts say.

"Historically, Vodafone has been a pure mobile operator," Henri Tcheng, a partner at consultants BearingPoint said. "But the future of telecoms includes convergence between very high-speed broadband, mobile and fixed so I would describe this as a compulsory move for Vodafone.

"It is quite a high valuation, but in any given country the cable operator is in a unique place for mobile operators. So even if it is expensive, it is not a bad deal."

Ono, which had been in the process of preparing for a stock market flotation, has 1.9 million customers on its network that covers 70 per cent of Spain, or 7.2 million households out of a total of around 16 million.

Having built the network later than other cable and telecom companies, Ono can achieve broadband speeds of up to 200 megabits per second, or up to 20 times the average of rival networks.

And its footprint in more rural areas fits well with the superfast network Vodafone is currently co-building with Orange in major cities including Barcelona and Madrid. Vodafone said today it would not commit to a second stage of the roll-out with Orange.

The British group, which is ramping up spending on its European networks to boost speeds, said the deal would enable it to save around €240m per year, before integration costs, by the fourth full year after completion.

It also expects to generate revenue of around €1bn as it seeks to cross-sell its mobile offering to Ono's cable customers, and vice versa.

According to the Spanish regulator, Vodafone had almost 25 per cent of the mobile market, and the deal which includes Ono's 1.1 million mobile customers is likely to increase that by almost 2 percentage points. Orange has around 23 per cent of the market.

In the provision of fibre, Vodafone would now be number one. Analysts said they expected regulators to approve the deal without requiring Vodafone to make any concessions.

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