Deutsche Telekom über alles

Liberty Media chairman John Malone said he is using his tried-and-true “friends and family” strategy to “build a cable communications industry in Europe,” he said.

To assist this vision, Liberty partnered with investor group Klesch & Co. to buy 55% of Deutsche Telekom's cable business in six German regions, serving more than 10 million subscribers. The company would not disclose what it paid or comment on analyst estimates of up to $2.6 billion.

At the same time, Liberty, through a complex transaction, upped its stake in UnitedGlobalCom (UGC) — a Denver-based cable provider that controls Europe's second-largest cable company, United Pan-Europe Communications (UPC) — by $1.4 billion. UPC has 11 million subscribers in 14 European countries outside Germany.

The two moves showed that Liberty is “back in the operating cable business,” Malone said.

Liberty will make “an effort to re-initiate the old TCI model of using our distribution — and the distribution of our affiliates and our friends — to build new assets to benefit the consumer… and to benefit those of us who create these new services financially,” Malone said.

Liberty's tentacles are far reaching. The holding company — now a wholly owned AT&T unit — has interests in 50 media and technology businesses, including links with Rupert Murdoch's global satellite businesses and a “good working relationship” with European multimedia giant Vivendi, Malone said.

“This is very consistent with what Liberty has been doing,” said Cynthia Brumfield, president of Broadband Intelligence. “They are the dominant international player, even though they are one step removed from being the actual operations manager of those properties.”

The European market is fallow ground. Only about 730,000 of the 10 million subscribers Liberty will gain in Germany have access to more than 33 channels and pay appropriately low monthly fees.

Liberty plans to upgrade those 450 MHz systems and build an appetite for interactive services, high-speed data and voice.

“Our goal is to work with our partners and other cable operators in the regions to take advantage of the aggregate scale that these companies represent to create new content and new services,” said Liberty CEO Robert Bennett.

And make money.

“These 24 million subscribers that we and our close affiliates will say grace over are all hard currency countries,” said Malone. This fits in with Liberty's goal to have “well-financed teams on the field focusing on each market and becoming the consolidator and upgrader of each market that they deal in.”

The policy makes sense technologically, said Michael Goodman, a senior analyst with The Yankee Group.

“It's something that's not too far off the mark from what they currently understand, but it gives them diversification because it's international,” he said.

The European market is more prepared for new interactive services than the U.S., which is currently in financial doldrums, Goodman added.

“In Europe, they're a bit more advanced than us in terms of rolling out some interactive things,” he continued. “They haven't found a way to make money off it yet.”

That's something Liberty — with its “friends and family” — aims to change.