Vodafone's huge broadband investment may force EU rivals to follow suit
VODAFONE'S plan to boost investment in broadband and superfast mobile networks after its $130bn (€99bn) deal with Verizon could force its European competitors to increase their own spending and even prompt further deal-making.
Under its "Project Spring", Vodafone plans to raise its capital expenditures by £6bn (€7bn) over three financial years to improve network quality for customers in Europe and emerging markets such as India and South Africa.
Strong growth in data consumption by smartphones, tablets and other devices means network quality is becoming more important in the fight to win and keep customers.
With that in mind, Vodafone decided to plough some of the proceeds from the sale of its 45pc in Verizon Wireless into infrastructure. But the bulk of the windfall – $84bn – will be handed to shareholders with the rest to pay down debt.
The move is also a sign that chief executive Vittorio Colao is betting the sector will benefit from softer regulation from the European Commission after it spent years forcing down roaming and other types of mobile call fees.
EU telecoms chief Neelie Kroes is expected to unveil a plan next week to create a single market for telecom services as part of an effort to boost competitiveness and help Europe catch up with the United States and Asia in mobile and broadband.
"The commission is getting clearly more pro-investment and understands that some of its past decisions were not helpful," Mr Colao said on a call with analysts this week.
Promising to provide more details of the financial returns from Project Spring in November, Mr Colao said the group's big competitors were also likely to increase network investments.
"With the advent of 4G mobile, there is a window for number one or two players in each market to spring ahead and put more space between us and smaller players," he said.
The pressure from a stronger Vodafone is likely to be toughest for Telefonica in Spain, Germany, and Britain and Telecom Italia in Italy. Both groups have high levels of debt that they have been trying to pay down.
Germany, in particular, is likely to be a battlefield. Vodafone and Deutsche Telekom each have about 34pc of mobile service revenue, and fourth-placed Telefonica has agreed to buy third-placed KPN.
Niek Jan van Damme, head of Deutsche Telekom's German operations, said he expected Vodafone to plough more money into Germany, although it remained to be seen how profitable that would be. "We will have to decide whether we have to do something," he said, adding that he sees further consolidation in Europe ahead.
A sector banker predicted that Project Spring would pressure other telcos to raise investments and spur them to consolidate, provided European antitrust regulators permit such deals.
Regulators are now examining consolidation deals, which risk hitting consumers with higher prices by reducing the number of operators, proposed by Hutchison Whampoa here in Ireland and Telefonica in Germany. (Reuters)