Europe’s big telecom firms are back to rude financial health after years of poor results and regulatory pressure, drawing crowds of new investors and protests from rivals who worry the formerly state-owned companies may rebuild their monopolies.
Germany’s Deutsche Telekom (DTEGn.DE) and Spain’s Telefonica (TEF.MC) have predicted that revenues will grow this year, while France‘s Orange (ORAN.PA) and Norway’s Telenor (TEL.OL) have promised higher future dividends, a major motivation for investors in the sector.
The renaissance is a marked shift from the past five years in which the sector’s sales fell steadily because of regulation ending various types of mobile fees and tough competition from cable operators such as Liberty Global (LBTYA.O) and low-cost players like France’s Iliad (ILD.PA).
Sector executives credit the improvement to new 4G technology that powers speedier mobile broadband, as well as a more relaxed attitude by regulators to mergers and acquisitions, and the fees the former state firms can charge to share their networks.
Deutsche Telekom Chief Executive Tim Hoettges attributed the rebirth of the firms often referred to as incumbents to the trend of selling multi-service packages comprising broadband, television, and fixed and mobile services.
“It is the convergence that makes the incumbents fly,” he said on Thursday. “We are in a better position to tell that story with confidence.”
Thus for the first time in eight years these incumbents gained broadband market share between January and July 2014, according to EU Commission figures, beating alternative players by emphasizing higher speeds.
All this has translated into a 15 percent rise in the European telecoms index .SXKP this year, after a 7.5 percent rise last year.
Consequently the once yawning valuation gap between U.S. and European telecoms has reversed, with the European sector now trading at 19.3 times forward price to earnings compared with 14 times for U.S. peers such as AT&T (T.N) and Verizon (VZ.N).