TAKING THE PULSE: Third-quarter results from European telcos are
expected to reflect increased regulatory pressure and declining
revenue at home and rising competition in emerging markets, while
prospects for a typical fourth quarter outperformance by the sector
are unlikely to be as strong as in previous years.
Analysts also expect there to be few signs yet of any sustained
cyclical recovery.
However, while the U.S. market, where Deutsche Telekom and
Vodafone are present, faces a worsening regulatory environment and
increasingly competitive pricing, Europe is at least expected to
enjoy more regulatory clarity, growing contract revenue and
increasing consolidation.
In this context, Dutch incumbent KPN is expected to post a solid
set of results with the benefit of a clean investment history.
Vodafone is likely to benefit from the strenghtening of the dollar
against the U.K. pound, which could accelerate into the fourth
quarter as sterling remains under pressure due to the continuing
contraction of the U.K. economy. However, it faces increased price
pressure in markets such as India and further regulatory pressure
in South Africa.
Some analysts expect Spain's Telefonica and Italy's Telecom
Italia, meanwhile, to disappoint in the third quarter, due to a
challenging macroeconomic environment and increasing competition in
their domestic markets.
COMPANIES TO WATCH
--- Royal KPN N.V. (KPN.AE) --- (Oct 27)
MARKET EXPECTATIONS: As KPN focuses more on profitability than
revenue growth, analysts expect results to be consistent with its
outlook for the full year. KPN's Chief Executive Officer Ad
Scheepbouwer recently said he expects 2009 Ebitda to come in a
range between EUR5.15 billion and EUR5.25 billion. Analysts
forecast similar trends to those seen in the previous quarter,
while new factors include the negative impact of lower mobile
termination rates in the Netherlands and lower roaming fees within
Europe.
MAIN FOCUS: According to analysts at Morgan Stanley, KPN
outperformed the sector last month but still has upside potential.
KPN's German mobile unit, E-Plus, and its strategy for returning to
growth will be closely watched. In Germany, mobile spectrum will be
auctioned by the government next year and E-Plus needs to make
significant investments in new frequencies.
--- France Telecom (FTE) --- Oct.29
MARKET EXPECTATIONS: Revenue and Ebitda is expected to be down,
due chiefly to the increased regulatory pressure the company warned
about when posting second-quarter results in July. France, the
group's largest market, which has so far remained resilient, is
expected to take a revenue hit from cuts in call termination rates.
Analysts don't expect the U.K. or Spain to have improved, and for
Poland to have deteriorated further.
MAIN FOCUS: While the company is expected to reiterate full-year
guidance for EUR8 billion in organic cash flow, its performance
will be closely watched. Analysts are also keen to hear comments
about cost control, especially after the group this week said it
will put restructuring on hold amid the political and social furore
generated by a string of employee suicides.
--- Deutsche Telekom (DT) --- (Nov 5)
MARKET EXPECTATION: Deutsche Telekom's third quarter "is likely
to be a mixed event," JP Morgan analysts say. While they expect
revenue trends to remain weak they believe the company can achieve
its operating profit goal despite adverse currency effects.
Deutsche Telekom has said it expects its adjusted Ebitda, excluding
Greece's Hellenic Telecommunications Organization SA (OTE), to be
2% to 4% below the EUR19.5 billion posted in 2008, with an
additional contribution of EUR2 billion from OTE. Deutsche Telekom
will report for the first time in its new geographic structure of
Germany, USA, Europe and Southern and Eastern Europe.
MAIN FOCUS: Deutsche Telekom is a good addition to a portfolio
but not a top pick, ING analysts say, as it has been the sector's
worst performing share year-to-date and now trades at a deep
discount. ING notes shares could be up if Deutsche Telekom
generates sufficient free cash flow to fund an unchanged dividend
of EUR0.78 a share and if there are encouraging signs in the U.S
where Deutsche Telekom's performance was weak in recent quarters.
Having addressed underperformance in the U.K. through a partnership
with France Telecom's Orange, speculation has turned to T-Mobile
USA, with some analysts speculating about consolidation or even an
IPO.
--- Telecom Italia SpA (TI) --- (Nov 5)
MARKET EXPECTATIONS: Analysts expect Telecom Italia's earnings
to suffer from domestic and fixed-line revenue deterioration,
despite a more favorable regulatory environment at home. They also
say the company is depending on asset sales to pay down its high
debt and maintain its dividend, but note the timing of these sales
isn't guaranteed.
MAIN FOCUS: The market will maintain its focus on debt reduction
and the implementation of cost-cutting measures, which are expected
to be on track. Investors will eye news on the announced disposals
of non-core assets of up to EUR3 billion, including German
broadband unit Hansenet and cable unit Sparkle. An expected renewal
of Telecom Italia's shareholding pact by Oct. 28 isn't expected to
impact the company's fundamental performance.
--- Vodafone PLC (VOD.LN) --- (Nov 10)
MARKET EXPECTATIONS: Analysts expects first half revenue to be
robust as pressure coming from termination rate cuts, ongoing
competitive intensity, and late cycle exposure to the downturn is
likely to have been mitigated by favorable exchange rate movements.
They expect adjusted earnings before interest and tax to
comfortably on track on meet full year adjusted EBIT guidance of
GBP11 billion to GBP11.8 billion.
MAIN FOCUS: Vodafone's performance in emerging markets is
expected to come under scrutiny, given it's the key area of growth
for the group. An update on further cost cutting measures is
expected following its GBP1 billion cost cutting program in
November last year.
--- BT Group PLC (BT) --- (Nov 12)
MARKET EXPECTATIONS: BT's troubled global-services division will
come under intense scrutiny following some early signs of recovery
in July, which buoyed the share price.
MAIN FOCUS: Investors will be keen to hear how the group's
retail business is doing given the reduction in calls and
fixed-line revenue. Dividend policy will also be in focus after BT
slashed in May its final dividend to 1.1 pence a share from 10.4
pence a year earlier. The market will be interested in the
perennial issue of its hefty pension fund but BT isn't expected to
report further details on this until its full year results in
March.
--- Telefonica SA (TEF) --- (Nov 12)
MARKET EXPECTATIONS: Analysts say Telefonica is being hit in
Spain as a recession and a drop in consumer spending reduces mobile
spending, a key part of the company's revenue. Telefonica's recent
Investors Day was a mixed bag with the company pledging to hike its
dividend but lowering its revenue targets.
Analysts are divided over Telefonica, with most saying the
company's international diversification and solid foothold in
European and Latin American markets will help it weather the storm,
while others say a prolonged financial crisis in Spain and reliance
on some inflation-driven markets in Latin America will eventually
catch up with the company.
MAIN FOCUS: After updating guidance and giving an extensive
analysis of its operations in October, investors will be looking
for information on Telefonica's acquisition strategy. The company
has bid for Brazilian operator GVT, potentially sparking a bidding
war with French media conglomerate Vivendi SA (VIV.FR), and could
have to offer more for the company. Telefonica has also said it is
negotiating with Telecom Italia to buy German broadband provider
Hansenet.
-By Giada Zampano, Dow Jones Newswires; +39 06 69766925;
giada.zampano@dowjones.com
(Ruth Bender in Paris, Archibald Preuschat in Duesseldorf, Jason
Sinclair in Madrid, Lilly Vitorovich in London contributed to this
report.)
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