The merger between the two Spanish direct-to-home (DTH) satellite platforms, Sogecable’s Canal Satelite Digital and Telefonica’s Via Digital, moved a step closer when Telefonica and Sogecable agreed to comply with the conditions set out by the Spanish Council of Ministers for regulatory approval.

The two operators could be acting as one by the middle of the year. Carlos Cerqueiro, director of investor relations at Sogecable, told Interspace: “We need to issue new shares to be exchanged for Via Digital shares. Via Digital should also approve the transaction at their shareholder meeting. But, it all takes time. We can expect to be working as a single company by mid-June.”

As part of the agreement, Telefonica will remain a shareholder of Sogecable for a minimum of three years from the date the transaction is completed. Both Sogecable and Via Digital have agreed that their net debts before the merger will not exceed 425 million and 705 million euros ($460 million and $764 million), respectively.

The merger may give Sogecable a dominant position on the pay-TV landscape with well over 80 per cent share of the market. It still faces a number of challenges to make DTH profitable in Spain.

Mike Hilton, a media equity analyst at UBS Warburg said in a research note: “Given the price limitations imposed on the company, disappointing subscriber growth in recent years, and the fact that potential synergies could take time to crystallise (due to long-term programming contracts in place and technological differences between the two platforms), we question Sogecable´s ability to breakeven before 2006.”

Yet, despite the deal being on track to go ahead, others are desperate to see it stopped. The Spanish cable operators association (AOC) is appealing to the country’s high court. AOC is arguing that the merger will impede competition in the pay-TV sector.

In an interview with Interspace’s sister publication Inside Digital TV last year, Spanish cable operator ONO CEO Richard Alden said: “Sogecable has over the last several years concentrated significantly most of the important rights for satellite broadcasting. Not only that they have concentrated most of the important rights for cable dissemination, although they don’t have a cable operation. We are seeing the beginnings of a Sky type monolith created with a clear strategy of dominating the market. I think we can survive side by side. My biggest concern about them coming together is access to content, the raw material for my service.”

Yet, while the cable players concerns are understandable, it would be a major surprise if the deal did not go ahead now. The two companies have filed a petition with the high court, requesting that certain merger conditions imposed by the Council of Ministers be annulled. In particular, one of the most controversial stipulations is that subscription charges have to be frozen this year and can only be raised by the level of inflation between 2004 and 2006. The price cap is controversial because it effectively makes it difficult for the new platform to increase ARPUs.

–Mark Holmes