FOCUS: More Deals To Come As European Telcos Hunt For Growth

30th Jul 2010 15:42

By Molly Neal Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Solid quarterly earnings will pave the way for further acquisitions and consolidation in the European telecom sector as operators jostle for position in an ever-more-competitive market place. As growth starts to dry up in mature European markets, telecoms operators are increasingly aware of the need to broaden their operations, eyeing opportunities to expand into emerging markets and to combine mobile and fixed-line services. In France, both France Telecom (FTE) and Vivendi SA (VIV.FR) are looking abroad for growth. France Telecom, which has been searching for new sources of revenue amid slowing growth in Europe said it aims to double its revenue from emerging countries over the next three to five years. The company reassured shareholders about its future dividend, pledging to pay out EUR1.4 a share in 201,2011 and 2012. But it said this won't hold it back from making acquisitions, although Chief Executive Stephane Richard reiterated that the group is not planning to embark on any large deal that would transform the company substantially. Vivendi is also looking to boost its presence outside its home market. It has said it will use the $5.8 billion proceeds from the sale of its stake in NBC Universal for either emerging market acquisitions or to buy out minority stakes. Analysts suggest however that Vivendi's biggest priority is to buy out Vodafone Group PLC'S (VOD.LN) 44% stake in SFR. That may not be an easy process though, given Vodafone has given no indication it wishes to sell. Vodafone is notoriously reticent about plans for its minority stakes, for which it regularly draws criticism from analysts and investors alike. The world's biggest mobile-network operator said last week that it will deliver a new strategy in the autumn, laying out how it intends to accelerate its strategy to drive shareholder value. Analysts said they expect a review of the company's portfolio and a clearer commitment to change, whether through disposals or structural change. Chief Executive Vittorio Colao said that Vodafone's minority stake in Verizon Wireless, its joint venture with Verizon Communications Inc. (VZ), remains a good investment, but it remains a thorny issue for investors as it hasn't paid a dividend since 2006. Despite saying in November last year that resolving the issue was the group's top priority, there were no further details on how it plans to do this when it announced first-quarter results last week. Spain's Telefonica SA (TEF) finally wrested control of Brazilian mobile operator Vivo Participacoes SA (VIV) from Portugal Telecom SGPS SA (PT). Telefonica paid EUR7.5 billion for PT's stake in Vivo and said it expects to get nearly EUR4 billion in synergies from merging Vivo with its fixed-line telecommunications company Telesp (TSP). PT, meanwhile, will use some of the proceeds from the sale to buy a 22.4% stake in rival Brazilian telecom operator Oi (TMAR5.BR). The protracted battle for Vivo highlights the importance for both Iberian telecom operators of growth outside their more mature home markets. Telefonica Thursday posted a 3.2% fall in revenue as it felt the pressure of increased competition and the continued fallout from the economic crisis. Spain has been struggling with high unemployment and weaker consumer spending since the country's economic troubles began last year. Brazil, by contrast, is one of the hottest markets for telecom companies due to the country's increasing affluence, strong economic growth and young population. -By Molly Neal, Dow Jones Newswires; 44-0-207 842 9290; [email protected] (Ruth Bender in Paris, Jason Sinclair in Madrid and Lilly Vitorovich in London contributed to this article.) (END) Dow Jones Newswires July 30, 2010 10:42 ET (14:42 GMT)