Divide between European and U.S. telcos widens

Sun Feb 24, 2013 10:30am EST
 

By Leila Abboud and Harro Ten Wolde

BARCELONA (Reuters) - When the bosses of global mobile operators meet in Barcelona this week, there will be an elephant in the room: the widening gap between fast-growing and richly-valued U.S. telecoms companies and their ailing European counterparts.

A overcrowded market, tough regulations and recession are hampering European telcos' ability to invest in faster networks, increasing the risk that the region's flagging economy falls further behind the United States and parts of Asia.

As a result, a transatlantic gap in company valuations has opened to its widest since 2008, with European telco stocks now trading at roughly 9.9 times earnings against 17.6 times for U.S. peers.

The gap reflects differences in the competitive landscape. Europe has about 100 mobile firms to the United States' six, as well as harsher rules that have sapped profitability and contributed to four straight years of revenue decline.

And it has real world consequences. As investors' confidence in them wanes, European telcos find it harder to raise or borrow money and become increasingly wary of funding network upgrades that take years to pay off, but are vital to economic growth.

"If it were just a valuation gap of 5 percent it wouldn't really matter, but when it is so large, it does have serious consequences," said France Telecom Chief Financial Officer Gervais Pellissier in an interview.

"If European operators don't get their financing capacity back and regain higher stock market valuations, investment in networks may be lower than many would wish."

To keep up with the smartphone and tablet computer boom, global carriers must invest $800 billion in their networks through 2016, according to trade group GSMA, notably on fourth generation (4G) mobile technology and fibre broadband that offer up to ten times faster internet speeds.   Continued...

 
An At&T logo is seen atop a store in Beverly Hills, California August 31, 2011. REUTERS/Danny Moloshok