A new merger sets the stage for two telecommunications giants to battle for supremacy in the emerging "triple play" market, in which companies provide customers with a package deal of cable television, high-speed Internet and telephone services.

UPC, the country's largest cable television provider, announced Aug. 9 its plans to take over Karneval Media, the country's second-largest cable company, positioning UPC to become a serious competitor to dominant telecommunications provider Telefónica O2 (previously Český Telecom).

The merger, worth 322.5 million euros ($412.8 million/9 billion Kč), has yet to be approved by the Anti-Monopoly Office (ÚOHS).

"The merger will expand our company to a size at which we will be able to compete with Telefónica," said UPC General Director Milan Bartoň.

UPC/Karneval would have nearly 1.2 million clients nationwide, while Telefónica O2 reaches more than 4 million.

Consolidation on the telecommunications market has powerful companies like Telefónica O2 providing triple play packages to customers, and UPC wants in on the action.

"There's no future in offering these three services independently," Bartoň explained. "The new trend lies in offering advantageous packages of all three."

While cable television providers are invading the fields of high-speed Internet and voice services — the longtime domain of Telefónica O2 — Telefónica O2 plans to add Internet Protocol Television to its portfolio next fall.

Monopoly concerns

Despite high ambitions, the completion of the UPC/Karneval merger needs ÚOHS approval.

The new UPC/Karneval giant would control about 80 percent of the cable television market, and the ÚOHS is expected to rule by the end of this year whether the cable market can bear such dominance.

"If we eventually approve the merger, we'll certainly set some limiting conditions," ÚOHS Chairman Martin Pecina said.

Cyrrus analyst Petr Bártek said that if the UPC-Karneval merger goes through, the new company would be able to dictate cable prices.

UPC's Bartoň rejected the speculation, insisting that the new company would focus on offering a competitive packages of services.

If history is any lesson, analysts are right to be concerned about a potential monopoly. Five years ago, UPC was under the ÚOHS microscope after jacking up its prices almost 300 percent.

According to the investigation, UPC set very low prices in order to boost the number of its subscribers and to discourage competitors from entering the market. Later, however, UPC tripled its charges.

The ÚOHS found UPC guilty of setting predatory prices and fined the company 7.8 million Kč.

UPC didn't have to pay the fine after the ÚOHS failed to consider the company's appeal in time.

Czech Telecommunications Office Chairman Pavel Dvořák showed little concern about the merger, despite the worries of some analysts and the ÚOHS.

"This is just evidence of a new trend of concentration on the electronic communications market," Dvořák said. "[The trend] will perhaps help accelerate digitalization and the development of triple or quadruple play. Hopefully, viewers will feel upbeat about the change."

The lure of the Internet

Rising consumer interest in high-speed Internet and the looming launch of six new digital television channels next spring have pushed companies to provide triple play services.

Bartoň said the more complex services provided by UPC/Karneval should push the company ahead of the new cable television competitors.

UPC has benefited from branching out. The number of cable television subscribers is stagnating, rising a mere 7.5 percent to 414,000 during the first half of this year.

Meanwhile, the increasing interest in high-speed Internet helped UPC boost the company's Internet subscribers by 50 percent this year, to 91,000.

Telefónica O2 has been outpacing UPC's Internet growth. The number of its high-speed Internet clients rose 136 percent to 386,000 during that same time.