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Liberty's KabelBW deal in jeopardy after court ruling

By Harro Ten Wolde

DUESSELDORF, Germany (Reuters) - A German court threw in doubt Liberty Global's completed 3 billion euro ($4 billion) purchase of KabelBW after reversing a 2011 antitrust approval, deepening uncertainties in a rapidly changing telecoms sector.

A regional court in Duesseldorf on Wednesday ruled that the cartel office must re-examine the case to either block it or force the firms to offer more concessions to protect competition in the cable television market.

The ruling, which ultimately could lead to the unwinding of a merger that bolstered Germany's second-largest cable operator UnityMedia in 2012, comes during sweeping competitive changes in the German telecom market where more large deals are pending.

Vodafone in June agreed to buy Germany's largest cable group Kabel Deutschland for 7.7 billion euros and Dutch telecoms group KPN last month agreed to sell its German unit to Telefonica for 8.1 billion euros.

The cartel office had approved the acquisition at the end of 2011 only after imposing far-reaching conditions because Liberty already owned Germany's second-largest cable operator UnityMedia, which then absorbed KabelBW.

Germany's biggest telecoms group Deutsche Telekom challenged the approval and the court already voiced concerns over the deal in a June hearing.

The decision is a victory for Telekom, struggling to keep up with services offered via broadband cable, and a setback for Liberty, which may have to offer more concessions to assuage concerns about potential market dominance.

"The merger implies that KabelBW as the only potential competitor has been taken out of the market," the court's presiding judge Juergen Kuehnen said. "Potential competition has been eliminated."

The court did not allow for an appeal of the decision, but UnityMedia can file a complaint with a higher court, Germany's Federal Court of Justice, to be allowed to appeal.

UnityMedia said it would use all legal means available to fight the court's decision.

Liberty Global shares were down 1.6 percent at 1015 ET.

DRAMATIC CONSEQUENCES

According to antitrust lawyer Frederik Wiemer of German law firm Heuking Kuehn Lueer Wojtek, who is not involved in this case, the court looked at several regional markets within Germany while the cartel office had mainly considered the national market.

"Certainly this ruling will have dramatic consequences," he said. "If this decision is upheld by a higher court, the merger will have to be unwound. I wonder whether this is actually possible."

Liberty Global and Kabel Deutschland have been winning customers from Deutsche Telekom with their expansion into broadband.

Their cable lines, designed to deliver TV to homes, have been upgraded to carry voice calls and Internet at speeds often five times faster than competing services offered by Deutsche Telekom and others.

Liberty has been the most active buyer in Europe in the last few months, snapping up Britain's Virgin Media in February and increasing its stake in Dutch group Ziggo.

In February, Germany's competition regulator blocked Kabel Deutschland's bid to take over smaller Berlin-based cable group Tele Columbus for 618 million euros, in a sign of rising regulatory hurdles.

In prior German cable deals, regulators required remedies to consolidation such as making it easier for housing associations to switch TV providers and ending the encryption on cable delivery of free-to-view terrestrial television programs.

"This is a stage win for Deutsche Telekom," said analyst Wolfgang Specht at German broker Bankhaus Lampe.

He said the cartel office could ask for more remedies if it decides to have a look at the case again. "A strong competitor for Deutsche Telekom will be impaired," he said. "More remedies will cost them extra. A reversal of the deal would be dramatic."

The court ruling should not, however, be seen as boding ill for Vodafone's offer for Kabel Deutschland, according to lawyer Wiemer.

"Vodafone's offer for Kabel Deutschland is complementary, which will put them on par with Deutsche Telekom."

The cartel office said it would study the ruling before deciding any next steps. ($1 = 0.7555 euros)

(Reporting by Matthias Inverardi, Peter Maushagen and Harro ten Wolde, Editing by Thomas Atkins)

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