Telefonica pursues digital TV ambitions with Kirch

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MADRID -- Telecoms company Telefonica of Spain, which had hoped to become a leader in cable TV, has switched its strategy to satellite-delivered digital TV and reached an outline agreement to establish a joint venture with Leo Kirch of Germany. Concrete plans depend on the German company's ability to come up with a 'low cost' decoder for the Spanish market, which can be used by any Spanish TV. This neutrality was a condition placed by the Spanish company on the agreement and is in line with the Spanish government's recent statement that it favored the development of a single digital TV platform. The other condition is that Telefonica will have a majority holding in the new company.

The move will bring Telefonica into direct competition with Retevision, the state-owned company responsible for TV signal transmission. Retevision, due to be privatized in October, had held its own talks with Kirch and was in the process of establishing a working group with TV channels to study digital TV. Retevision, which is to form the nucleus of Spain's second telecommunications company and compete with Telefonica once basic services are liberalized, says it will continue its digital developments.

Telefonica says the new venture will offer 50 TV channels and other services such as home-shopping. So far the country's TV companies, including Tele 5, in which Kirch has a 50% stake, have refused to comment on the link up. No comment was also the reply from Canal Plus, the Prisa-controlled pay-channel which was Telefonica's partner in the stalled Cablevision venture. Following the introduction of tough restrictions on its cable plans by the Spanish government and an on-going EU inquiry, Telefonica recently announced it was 'putting on hold' planned investments in the cable area of $500mn. Canal+ of France is among the company's seeking to prevent Kirch from dominating the digital market.

Sources at Spain's leading media buyers said they were following the developments with interest but were unanimous in the view that the key will be the cost of the de-coder. If the set-top box is similar to the $625 cost of Kirch's D-Box in Germany they, media buyers don't many takers, particularly with cabling projects underway or planned in the short-term in most Spanish cities.

Copyright July 1996 Crain Communications Inc.

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