FRANKFURT (Reuters) - Deutsche Telekom DTEGn.DE is buying Austrian cable provider UPC from Liberty Global LBTYA.O for 1.9 billion euros ($2.25 billion) including debt as it adds broadband services to countries where it only offers mobile operations.

Deutsche Telekom logo is seen during preparations at the CeBit computer fair, which will open its doors to the public on March 20, at the fairground in Hanover, Germany, March 18, 2017. REUTERS/Fabian Bimmer

For Liberty Global, the sale is seen as part of efforts to reorganise its operations in the event that merger negotiations with Vodafone VOD.L resume.

With the acquisition, Deutsche Telekom is hoping to challenge the dominance of local incumbent Telekom Austria TELA.VI, which has around 1.5 million fixed-line broadband subscribers, compared to roughly 500,000 for UPC Austria.

The deal comes days after Deutsche Telekom expanded its fixed-line footprint in the Netherlands and signed a letter of intent for Poland. It also comes in the wake of its failure to merge its T-Mobile U.S. TMUS.O operations with Sprint in autumn.

Deutsche Telekom, which generates two thirds of its sales outside Germany, will be left with mobile only operations in its largest single market, the U.S., as well as in small countries such and Albania, if the recently struck deals come to fruition.

For their part, Liberty and Vodafone have talked about combining forces as telecoms networks and services converge but have so far only announced a joint venture in the Netherlands.

Vodafone is currently spending 2 billion euros on building out its fixed line network in Germany, but it said in November the investment did not preclude a Liberty deal.

With Brexit only 15 months away, UK authorities are expected to play a larger role in merger control, implying that Vodafone and Liberty will pursue two separate transactions, one for Germany, Netherlands and Eastern Europe and one for the UK and Ireland, analysts from Bernstein said.

“That this (Deutsche Telekom-Liberty) transaction is a prerequisite or a catalyst for the still elusive mother or father of all cable/mobile deals is thoroughly premature in our view,” they said.

Vodafone, which does not have its own network in Austria, and Liberty Global declined to comment on merger speculation.

DEAL VALUE

Liberty said it plans to use the proceeds from the sale to reduce debt of the remaining UPC group, which is focused on Eastern Europe and Switzerland, as well as to finance Liberty’s share buybacks.

The deal values UPC Austria at about 10 times its estimated 2018 earnings before interest, tax, depreciation and amortization.

Pre synergies, it comes at a 10-14 percent premium to European cable valuations, said Bankhaus Lampe analyst Wolfgang Specht. “Not cheap, but given the strategic deadlock Deutsche Telekom has to accept some premium,” he said.

The company said the net present value of potential synergies after integration costs amount to 800 million euros.

“The integration of UPC Austria with its own network as well as TV and entertainment offers will make us a strong competitor to the current market leader, A1, and transform T-Mobile Austria into a completely new company,” Deutsche Telekom said.

Liberty Global will also provide certain transitional services for a period of up to four years, mainly network and information technology-related functions, and allow T-Mobile Austria to use the UPC brand for up to three years.

The deal is expected to close in the second half of 2018.

LionTree Advisors was the financial adviser to Liberty Global on the deal, while Deutsche Telekom worked with Credit Suisse CSGN.S.