Vodafone’s $10 billion purchase of Spanish cable operator Ono cements the British telecoms company’s pursuance of a ‘united communications’ model. And the British firm may have fired the starting gun on a year of spending in Europe, despite continued acquisition overtures from American outfit AT&T.
The acquisition of Ono, Vodafone’s first since the company sold its 45% stake in Verizon Wireless to Verizon Communications for $130bn last month, follows a $10 billion acquisition of German provider Kabel Deutschland last year. The buys are expected to help Vodafone compete with Spain’s Telefónica, and Germany’s Deutsche Telekom, in offering high-speed broadband to cell phone and fixed line customers on the continent. Vodafone’s shares hopped 1.6% on news of the deal.
“Demand for unified communication products and services has increased significantly over the last few years in Spain, and this transaction – together with our fiber-to-the-home build program – will accelerate our ability to offer best-in-class propositions in the Spanish market,” said Vodafone chief executive Vittorio Colao in a statement.
Ono’s $10 billion price tag, financed with existing cash and debt, seems to sit at odds with pre-tax, depreciation and amortization earnings of just under a billion dollars, with around 1.5 million broadband customers, 1 million cell phone customers and fiber-optic services available to 7.2 million homes. “As part of Vodafone, Ono will continue to seize new growth opportunities and deliver the quality that our customers expect,” announced José María Castellano, Ono’s chairman, in a statement.
But Moody’s recently suggested that increased M&A activity by Vodafone – part of its Project Spring strategy which aims to invest $10bn in 3G, 4G and high-speed broadband across three years, could force other investors to “follow suit” in Europe’s flagging telecommunications industry.
“We forecast an average capex/revenue ratio (as adjusted by Moody’s) of approximately 18% or higher in 2014,” reads the company’s latest EMEA outlook. “Vodafone’s investments may force other European operators to follow suit and increase network spending.” The firm expects average EBITDA margins to stabilize in 2014 following a slight dip of 1% last year.
“While we expect revenues to stabilize or marginally decline by 0% to -0.5% in 2014, it is not clear how sustainable any recovery will be,” says Carlos Winzer, a senior vice president in Moody’s corporate finance group and author of the report. “We have had a negative outlook on the sector since November 2011 and would expect to see a predictable and sustainable 1% to 3% annual revenue growth to make it stable.”
However a further complication to the industry may be AT&T’s continued interest in Vodafone, as the U.S. giant seeks a foothold in Europe. Last week AT&T warned that its window for European investment was closing. Yet several experts have suggested that it was a ploy designed to lower Vodafone’s price. Under U.K. takeover rules AT&T cannot approach Vodafone until the summer. But talks may be held if initiated by the British company.