EUR 850.00 For Business Accounts Only

Morningstar | Lowering FVE Due to Slower Revenue Recovery in Spain and Italy and Higher Spectrum Costs

Vodafone is successfully transitioning from one of the world’s largest wireless-only telecom firms to a diversified operator offering converged mobile and fixed-line services in many markets. We think this is an important transition, as Europe is rapidly moving into a converged world. The acquisitions of Kabel Deutschland in Germany, Ono in Spain, and Cable & Wireless Worldwide in the United Kingdom provide Vodafone with some key fixed-line infrastructure in three of its biggest European markets. The firm has also laid significant amounts of its own fibre in Italy and has signed an agreement with Enel, the electric utility, to use its fibre in many other areas. In the Netherlands, it completed the merger of its wireless business with Ziggo, Liberty Global’s Dutch cable business, in a 50/50 joint venture. Also, it has agreed to merge its Indian business with Idea Cellular, which will make it the largest wireless operator in India and provides significant cost savings. It has now agreed to acquire Liberty Global’s operations in Germany, Romania, Hungary, and the Czech Republic. This deal, if it receives regulatory approval, will significantly strengthen Vodafone's convergence strategy. However, we remain sceptical of its ability to receive regulatory approval, particularly in Germany. In the past, the German regulators have stopped at least three attempts to consolidate the German cable market. That said, Vodafone claims that the regulatory environment has changed and it expects approval. We think all these deals position Vodafone to compete more effectively. The company has also dramatically increased its enterprise business, which now accounts for 27.7% of revenue and tends to have long-term contracts.Vodafone has also improved the quality of its networks, enabling the firm to compete more on quality and less on price. Management believes customers who want the fastest and most reliable wireless network will be willing to pay a premium for that service. We are beginning to see this strategy work, as many new customers are opting for higher-priced packages. We anticipate this will increase as quality becomes increasingly important with the growth of data usage.