John Malone's Liberty Media is set to be blocked in its attempt to become Germany's leading cable operator, a move that is likely to see the company turn its attentions to the UK.
The German cartel office is today expected to formally reject Liberty's €5.5bn (£3.4bn) bid for Deutsche Telekom's cable assets, which distribute TV. The watchdog is concerned that Liberty, which is based in the US, would occupy a monopoly position and is not willing to upgrade the network to allow it to take voice traffic, which would compete with Deutsche Telekom's fixed line business. The objections come despite a pledge from Liberty to invest €8.3bn on the German network.
According to a leak of the cartel office's decision, it will say that "the [Liberty cable takeover] plan would reduce ... competition in monopolistically structured markets".
Deutsche Telekom is labouring under a debt pile and was relying on the cable sale to help cut it to manageable levels.
The German telecoms group will now have to urgently find another buyer for the cable business. Compere Associates, a venture capital company based in London, yesterday said it was ready to spring into action as a replacement buyer.
Tom Crema, a partner at the company, said it considered €5.5bn to be an "appropriate" price for the business. He said Compere's bid would not raise the same regulatory objections. "Our business model is a 180 degree different approach to Liberty and therefore does not run into the same kind of concerns," Mr Crema said.
As well as the voice issue, Liberty was proposing a vertically integrated model, where it would control both the distribution network and the content on it. An aggressive US company wielding this much power over German media raised alarms at the cartel office. Compere will run the network on an open access basis and provide a voice upgrade.
Thwarted in Germany, Mr Malone, known as the "king of cable", is already turning to the UK instead. Liberty has a 25 per cent stake in Telewest, the UK cable group. It is understood that he is examining the restructuring now underway at NTL, Telewest's main competitor, which is in a debt crisis.
NTL is looking at ways to cut its crippling £12bn debt mountain. One of the main elements of this plan would be to persuade lenders to agree to a debt-for-equity swap. Having Mr Malone on board as a strategic investor would greatly add credibility to NTL's plans. It is thought that Microsoft and AOL Time Warner are also considering a cash injection into NTL but Liberty is the front-runner.
It has always been assumed that Telewest and NTL would merge at some stage. Liberty taking a sizeable stake in NTL would be a prelude to this merger. With Liberty fully behind it, the UK cable industry could mount a more convincing assault on its satellite opposition provided by Rupert Murdoch's BSkyB.