Vodafone Group Plc (ADR) (VOD), Telecom Italia SpA (ADR) (TI): Is it Time to Consider a European Telecom Provider?

Page 1 of 2

The Verizon buyout of Vodafone Group Plc (ADR) (NASDAQ:VOD)’s minority stake looks a win for both parties. Verizon acquires full ownership of its leading U.S. wireless business and Vodafone Group Plc (ADR) (NASDAQ:VOD) gets about $130 billion in cash and stock. But the transaction also suggests that the British company might be expecting better returns elsewhere. Vodafone Group Plc (ADR) (NASDAQ:VOD) and other telecom giants have been increasingly looking to Europe. It may benefit individual investors to look there as well.

Vodafone Group Plc (ADR) (NASDAQ:VOD)

The European market is inhospitable but active
The European telecom market is not a very friendly place to operate. Increased competition and government regulation hobbles profitability in a fairly saturated market. But as tough as the environment is, Europe still seems a popular area for telecom deal making.

Mexican billionaire Carlos Slim’s America Movil recently made a $9.6 billion bid for the 70% of KPN, a Dutch telecom company, that it does not already own. Slim is trying to topple an earlier $11 billion offer from Spanish telecom leader Telefonica for KPN’s key asset, Germany’s E-Plus. America Movil isn’t the only company looking to raise its presence in Europe. Top U.S. wireless operator AT&T has been reported to be looking for an acquisition on the continent and Vodafone Group Plc (ADR) (NASDAQ:VOD) recently outbid Liberty Global, a company controlled by American media mogul John Malone, with a nearly $10 billion offer to win Kabel Deutschland, the biggest cable TV operator in Germany.

European telecom companies to watch
Given that these telecom giants find European markets attractive, individual investors may also want to consider investing in the sector. Some prominent firms include:

Telecom Italia SpA (ADR) (NYSE:TI) is a fixed and mobile telecom company with most of its operations in domestic Italy, which generates about 60% of revenues. Brazil and Argentina properties account for the remaining 40%. Though the company operates in a tough environment with a heavy debt load, it also looks amenable to some sort of partnership to help ease its burdens.

Last December, Telecom Italia SpA (ADR) (NYSE:TI) turned down separate offers of investment and a combination of wireless assets due to valuation differences. Though those discussions fizzled, Italia still looks inclined to make an arrangement. In a move to possibly ease government concerns, the company recently said it is planning to spin-off its fixed-line assets into a new company with some ownership going to a state lender. Fixed- line assets are considered strategic by the Italian government and such a proposal could offer the company more flexibility in dealing their mobile business.

Page 1 of 2