Unity Media, Germany's No. 2 cable operator, is preparing for an initial public offering toward the end of this year, raising as much as 1 billion euros ($1.4 billion), people familiar with the matter said.

The company, which is owned by private equity firms BC Partners and Apollo Management LP, provides broadband Internet, telephone and digital TV to 4.6 million customers in 10 of Germany's biggest 20 cities, including Frankfurt, Cologne and Dusseldorf.

The third-biggest European cable operator plans to raise about 500 million euros ($705.7 million) to 1 billion euros toward the end of this year or early next year, the people said.

Morgan Stanley and UBS are arranging the deal, according to the sources.

Germany's broadband penetration rate, at 58 percent in 2008, lagged other key European markets -- Switzerland was 76 percent, France was 69 percent and Britain was 66 percent.

But growth in Germany has been stronger. Germany's average annual broadband growth was 16.9 percent in 2007 and 2008, ahead of growth of 13.4 percent in France and 10 percent in Britain.

Unity Media expects the country's broadband penetration to reach 78 percent by 2011.

Despite the global economic crisis, Unity Media's adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 13 percent in the first quarter to 107 million euros.

Its EBITDA last year was 395 million euros, up 46 percent from a year earlier.

Germany's cable network was originally built by Deutsche Telekom, but it was forced to sell the network. Kabel Deutschland and Kabel Baden-Wurttemberg are the other top cable operators in the country.

($1=.7085 Euro)

(Editing by Rupert Winchester)

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