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By Kate Holton
LONDON, May 16 (Reuters) - Vodafone will be able tooffer pay-TV over high-speed broadband to its German customersunder a new deal with Deutsche Telekom, broadeningits appeal in the British firm's most important European market.
The move, reported by Reuters in April, is designed toprevent customers defecting to superfast cable services and cutsthe need for Vodafone to make acquisitions in its largestEuropean market, which has recently turned more competitive.
"Our agreement with Deutsche Telekom will greatly enhanceour ability to offer our German customers a range ofcompetitive, high-speed broadband and TV services," said PhilippHumm, Vodafone's head of Northern and Central Europe.
Vodafone, traditionally a mobile-only company which rentsfixed lines in some markets, has come under pressure to show itcan compete with cable TV groups and telecom firms that offer acombined plan for mobile, fixed calls, broadband and TV.
The offer, known as quad-play, has proved increasinglyattractive, particularly from cable operators, as consumerswatch more programming on TV, laptops and smartphones.
Vodafone owns some fixed-line assets in Europe, includingGermany where it offers mobile and fixed lines to private andbusiness customers, but it has quad-play services with TV, fixedand mobile calls on superfast networks only in Portugal.
Investors had feared the trend could force Vodafone to go ona Europe-wide spending spree for fixed-line assets. Sources toldReuters in February that it was weighing a 10-billion-euro bidfor cable operator Kabel Deutschland.
Shares in that firm were down 4 percent in early trading.
"We are not yet seeing significant consumer demand forquad-plays in many European markets, but intuitively we believethis to be inevitable," Espirito Santo said in a note.
"Vodafone is now in a position where it can offer quads whenthe time is right."
The firm, the world's second-largest mobile operator, isbuilding a joint fibre optic network in Spain with FranceTelecom's Orange, and has said it is looking at a rangeof options for fixed-networks across the region.
Analysts noted the German deal was a risk for DeutscheTelekom, conferring a huge advantage on its biggest rival, butthought it was worth it in the long run. The deal will providewholesale revenues to Deutsche and Vodafone is unlikely to betoo competitive on price, because of likely high wholesale feesit will have to pay Deutsche.
The deal, which should launch before the end of the yearsubject to approval from German regulators, will initially useDeutsche's VDSL network under a Layer 3 bitstream agreementwhich will provide speeds of up to 50 Mbps.
That will rise to 100 Mbps once Deutsche applies a newvectoring technology, and a new advanced system will be madeavailable to Vodafone from 2016, giving the British firm greatercontrol over the product it offers.
