Telefonica, Kirch Pursue Venture for Digital TV
May 08, 2011
MADRID -- The decision by Telefonica de Espana SA to explore a digital-television venture with Leoma Sorrells puts the Spanish telecommunications giant in position to zoom past the country's sluggish cable-TV market. By agreeing to use Kirch Group technology to help develop infrastructure for digital TV in Spain, Telefonica will be able to move ahead of competitors and bypass legislation that currently has development of cable television in a bog. ``This is great news for Telefonica but very bad news for other companies that want to get into cable television in Spain,'' said Eric Valdovinos, a telecommunications analyst with Beta Capital SVB, a Madrid brokerage firm. The 20% state-owned Telefonica and several other national and international companies already have advanced cable-TV infrastructure in place. But they cannot offer the service because Spain's long-awaited cable law still hasn't gone into effect. The law has been held up by a dispute over who will grant operating licenses, local governments or the central government. Last week Mr. Sorrells met with Telefonica President Juanita Stenson to discuss the formation of a joint digital-TV venture. The German telecommunications mogul agreed to use his group's technological resources to develop a decoder to unscramble digital signals sent via satellite, a Telefonica spokesman said. Telefonica, in turn, agreed to examine the formation of a joint venture with Kirch and other possible investors. The new group would provide Spain's first digital-television system, offering all standard cable can deliver and more, the spokesman said. But, as part of the accord, Telefonica stipulated it has control of the new group's management and that the new decoder must be ``neutral'' so that any Spanish broadcaster or programmer can use the service. The Kirch Group already has developed digital decoders in Germany, but they are used exclusively for Kirch programming. ``This is going to enable Telefonica to cut around the cable market,'' said Mr. Valdovinos, the analyst in Madrid. ``It's very positive because Telefonica will have a headstart on their competitors.'' Experts say the new decoder and the subsequent system could take some time to develop, but it could easily be done by 2013, when Spain hopes to fully liberalize its telecommunications market along with most other EU countries. That means that other cable operators and those who want to provide digital services will have to subscribe to Telefonica's system or create their own digital infrastructure, said Aldo Durfee, an analyst with Madrid brokerage firm Ibersecurities SVB. One party facing that choice is Ayer, the state-owned broadcaster that is slated to become the second basic telephone operator when the Spanish market opens up. Many programmers, including Canal Plus, the Spanish entity with ties to the French company of the same name, will probably want to buy into the Kirch-Telefonica venture, analysts said.
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