Nokia Says Rebound in Europe Carrier Spending Sustainable

European phone companies, emboldened by the region’s economic recovery and improving demand for data services, are showing signs they will spend more on networks, according to wireless-equipment supplier Nokia Oyj.

Carriers’ revenue in Europe is either rising again, or at least declining at a slower pace, as they change the way customers are billed for the amount of data consumed. That’s encouraging operators to make larger network investments to improve Internet speeds and coverage, said Tommi Uitto, head of western Europe for Nokia’s network division, which raised a long-term earnings target last week.

“It’s not just a one-off, not just one quarter,” Uitto said in an interview this week. “Strong deal momentum” is set to help revenue in the coming quarters, he said.

Nokia, Ericsson AB and Alcatel-Lucent SA, the three largest European network suppliers, are among companies using an investor conference organized by Morgan Stanley this week to reassure investors the worst is over for the industry. Vodafone Group Plc Chief Executive Officer Vittorio Colao said at the event in Barcelona that demand is coming back, even in some of the weakest markets such as Greece and Italy.

Deutsche Telekom AG plans to keep up its level of network investments beyond next year as it starts rolling out more fiber connections and upgrades networks in eastern Europe, according to CEO Timotheus Hoettges.

German Discounts

Phone companies are selling combinations of fixed and mobile services in a bid to generate more revenue and prevent customers from switching to rivals. In Spain, communications companies that added a new service, such as mobile, sold it at a discount, while in Germany, there’s been less of a markdown, Colao said. The temptation to use the bundles as a way of cutting prices could jeopardize profit, Colao said yesterday.

That would in turn affect carrier’s appetite to upgrade their networks.

Nokia said last week that it now expects adjusted operating profit for its networks unit at 8 percent to 11 percent of revenue in the long term, compared with a previous target of 5 percent to 10 percent.

Nokia’s networks sales in Europe rose 9 percent last quarter, while larger Ericsson’s revenue in western and central Europe increased 6 percent. Vodafone, which reported a smaller decline in service revenue than analysts estimated, is the latest carrier to show improvement after years of price wars, as rivals from Germany’s Deutsche Telekom AG to France’s Orange SA also exceeded estimates for the most recent period.

Vodafone is spending 19-billion pounds ($30 billion) as part of its Project Spring network-investment plan to roll out more high-speed fourth-generation mobile and fiber-broadband infrastructure. The project will run through 2016.

Catching Up

The rebound in operator spending in Europe follows other regions, such as South Korea, Japan and the U.S., where carriers have focused on speedier fourth-generation networks, Uitto said.

“4G rollouts are accelerating finally in western Europe,” Uitto said at Nokia’s headquarters in Espoo, Finland. “It’s a catch-up compared to the rest of the market.”

Demand for wireless-network gear will grow an average of 2 percent to 4 percent each year through 2017 globally, Ericsson projected last week.

The market is improving after several difficult years. Ericsson announced two years ago it was reducing almost 10 percent of its Swedish workforce to boost profit. Nokia Chief Executive Officer Rajeev Suri slashed more than 25,000 jobs while he was head of its networks business to revive the company after years of losses.

Nokia shares rose 0.4 percent to 6.22 euros at 1:10 p.m. in Helsinki. They have gained 6.9 percent this year, valuing the company at about 23 billion euros ($29 billion).

Before it's here, it's on the Bloomberg Terminal.