NEW YORK ( TheDeal) -- As someone who grew up just miles from his Englewood, Colo., corporate headquarters, it pains me to say this: John Malone, give up on Germany. The country's regulators will never let you buy more German cable assets. Malone's Liberty Global Inc. ( LBTYA)international cable company is reportedly taking a hard look at publicly-listed Kabel Deutschland Holding AG, which operates in all but three of Germany's 16 states. Most notably, it has no customers in North-Rhine Westphalia, the most populous state, or in Hesse, home to Frankfurt. Meanwhile, Liberty operates Unitymedia GmbH, which now has networks in the three states where Kabel doesn't. Buying Kabel Deutschland would give it the entire country and a dominant position. Liberty only last year expanded into the third state with the ¿3.16 billion ($4.1 billion) acquisition of Kabel BW GmbH -- and regulators considered blocking that purchase. Stiff disposals were needed to win approval. It's doubtful they would approve anything else unless the bidder has no German cable assets. Indeed, just this year regulators told Kabel, whose own market value is about ¿6.4 billion, to forget a proposed ¿618 million acquisition of creditor-owned peer Tele Columbus AG. Germany's Bundeskartellamt competition regulators don't want Germany's cable network reunited -- they broke it up at the turn of the century when it was a single national asset owned by Deutsche Telekom AG to foster competition and investment. The argument that Liberty chairman Malone and his attorneys are likely to argue that regional cable companies no longer compete with each other; they compete with international telecoms. On the face of it, this seems true: German telecoms and cable companies are trying to attract customers by giving them the full palette of fixed-line telephony, broadband and even television. But there's one crucial difference: cellular and cellular broadband. Fixed-line phones are slowly dying out and TV isn't really enjoying fat margins. Growth in the telecom sector comes from broadband and ever-faster broadband networks. If a cable company wants to offer its customers the quad play -- traditional phone services; DSL, or digital subscriber line; TV; and cellular -- it has to buy time on a telecoms network. Is that really competing? Since cable companies are technically unable to get into the cellular broadband game, they have to focus on the basics: phone, Internet and TV. And the only way to ensure prices remain low for those basic services is to ensure competition between regional competitors.
That means the only alternative for Kabel -- which has said it would prefer to remain independent -- is a takeover by another rumored suitor, the U.K.'s Vodafone Group plc, which could then add that crucial cellular component to Kabel's regional business. Meanwhile, Malone's already adding quad play to his European cable business -- he is working to complete the $23.3 billion acquisition of Virgin Media Inc., a U.K. cable company that already includes mobile alongside DSL, phone and cable. Written by Andrew Bulkeley in Berlin