Vodafone Group Plc (VOD)’s 6 billion-pound ($9.6 billion) plan to upgrade its networks around the world will pressure European carriers to increase their spending, according to Moody’s Investors Service.
Carriers on the continent will struggle to keep up with Vodafone -- whose three-year “Project Spring” will boost capital expenditures by 30 percent -- since they don’t have the same financial flexibility, Moody’s said in a report today.
Vodafone is funding Project Spring with the $130 billion from selling its stake in U.S. mobile carrier Verizon Wireless, due to be completed in the first quarter of next year. Vodafone plans to use the cash to blanket 90 percent of its five largest European markets with high-speed, fourth-generation wireless service by 2017, the company has said.
“The clear, underlying message is that most companies in Europe are going to have to step up their capex in order to accelerate convergence to set off the challenges coming from Vodafone,” said Carlos Winzer, senior vice president of corporate finance at Moody’s. Carriers are moving to so-called converged services -- combinations of Internet, phone and TV -- to boost customer loyalty and bills.
The telecommunications industry’s performance in Europe is tied to the “fragile” recovery in gross domestic product, Winzer said. While revenue as a whole will stabilize or decline slightly in 2014, a stronger revival will be delayed by low consumer spending and carriers’ slow shift to pricing plans focused on data use rather than voice, Moody’s said.
Large cross-border acquisitions are unlikely next year since the five leading European phone companies -- Telefonica SA, Deutsche Telekom AG, Vodafone, Orange SA and Telecom Italia SpA -- are “either in selling mode or do not have much flexibility or appetite to lead this process,” Moody’s said.
Cross-border deals are less cost efficient than same-country consolidation and vulnerable to governments trying to keep home-grown companies under local control, Moody’s said.
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