Further consolidation in the German market has been expected for some time since Liberty jumped back into Germany with its acquisition of Unity Media in January 2010. When deal completes, Liberty will have control of the two smaller trunk or 'Level 3' cable network operators, although the distinction between Level 3 and the Level 4 (last mile) is becoming less clear as the groups have moved increasingly towards direct customer connections. With Unity and KBW brought under the control of a single owner, only 8.8m-home behemoth KDG remains before the German cable market is fully consolidated at Level 3 and the former Deutsche Telekom network is reunited under a single owner, a move that the country's cable industry has long lobbied for in order to compete through a national network with the telco incumbent. Liberty's buy still requires regulatory approval, something that has previously hindered combination of the larger Level 3 cable groups.

While we expect this deal to pass regulatory scrutiny, a combination between Liberty's holdings and KDG must now be high on the agenda and that may yet be a regulatory step too far. KDG listed on the German stock market on 22 March last year and has seen a 71 per cent increase in its share price. Liberty's commitment to Germany comes at a time when the market has reached something of an inflexion point. Market factors that have left Germany lagging in digital uptake and triple-play are fast disappearing and with consolidation between Level 3 and Level 4 operators the German market should be well positioned to grow ARPU from increasing service up sell. But it also comes at a time when Deutsche Telekom is moving increasingly to control its own last mile connections for TV and telecoms services through deals with local housing associations, as well as working more closely with Sky Deutschland to sell premium TV.