CGates to become Lithuania's largest pay TV player

By
Andrew Katolo

September 27, 2011

Lithuanian cable TV player CGates has signed a deal to acquire the country's fourth largest cable TV player, Microvisatos. Financial terms were undisclosed. Following the acquisition, CGates, which is owned by US company Advanced Broadband and Swedish firm SEB Venture Capital, will provide cable TV to over 120,000 homes, becoming the largest pay TV player in Lithuania. CGates was created in 2010 by Sweden's Tele2 as a result of the merger of four local cable TV operators. In 2011 it was bought by rival operator Viginta, which at the time provided cable TV services under the consumer brand VDNet (used also by a few other players owned by Advanced Broadband and SEB Venture Capital); however the entity which emerged from the 2011 merger took on the brand CGates.

Currently there are just short of 50 cable TV providers in Lithuania. The economic crisis in 2009 strongly affected cable TV operators in the Baltic countries in terms of their financials, although had minimal impact on raw subscriber numbers. The two investors involved in the latest deal, Swedish bank SEB and Advanced Broadband, started buying out Lithuanian cable TV players back in 2010, seizing the opportunity to purchase assets at a lower price.

Pursuing the strategy of acquisitions, after less than two years they saw their company become the largest pay TV player in the country and seem to be ready to continue with further investments. Similar investment groups are also operating in Latvia (AXA and Resource Partners) and in Ukraine (PPF Investments). In Lithuania, despite cable TV penetration reaching just 30 per cent of homes, the cable market has remained practically flat since 2008, although multichannel TV now reaches just over 60 per cent of households.

While there is certainly potential for growth in Lithuania's pay TV sector, cable TV players are facing strong competition from the incumbent telco, Telia Sonera-backed TEO, which provides IPTV and DTT services and has adopted very aggressive marketing. Another strong competitor is satellite pay TV player Viasat, which has recently extended its exclusive rights for UEFA Champions League in the Baltic countries to 2015.

To compound issues for cable, uptake of digital TV via cable is relatively small. Even some of the largest players are providing digital TV services to less than 10 per cent of their TV customer base. On the other hand, the major driver of the market growth is currently not quality, but the price. Still, in a highly competitive market, rolling out digital TV (and broadband Internet services) is a must for cable TV players, which face similarly-priced interactive and digital TV competition.

As a consequence, CGates is investing in upgrading the networks of the acquired companies and in rolling out triple-play services. As a bigger player - now with revenue generating units (RGUs) exceeding 160,000 in total - CGates will be in a position to provide more formidable competition to TEO. The investments may also pay dividends in the future if the group controlling CGates decides to sell its assets, having improved the profiles of and business outlook for the acquired companies and raised the value of their combined services.

Tags:

Countries: Lithuania
Companies: CGates Microvisatos Advanced Broadband SEB Capital Ventures Teo LT TeliaSonera AXA Resource Partners PPF Investments Viasat Viginta VDNet