Almost £16bn has been added to the value of the European telecoms sector after an unexpectedly strong run of results, slowing a long-term decline in revenues at some of the region’s largest groups.
On Tuesday, shares in Vodafone rose more than 5 per cent – the most in more than a year – after the group showed that the worst might be over for the European telecoms sector. Vodafone reported a rapid take-up of mobile data alongside improvements in key service revenues.
Results from Deutsche Telekom, France’s Orange , Telecom Italia, KPN and others in the sector have also been taken positively by investors in recent weeks, leading some analysts to upgrade forecasts.
A combination of factors has helped companies, in particular the lessening of the impact of regulated price cuts. However, companies such as Vodafone have also pointed to the early benefits of investments to improve their networks, leading to more people upgrading to faster 4G smartphones such as the iPhone 6 and using more data to watch videos and listen to music.
Research by Citi for the FT shows that the value of the European telecoms sector has increased £16bn since the start of last month before the results season started.
The market value of the S&P Europe Telecoms index has reached about £306bn, with an increase of a further £8.2bn on Tuesday morning alone.
On Tuesday, Vittorio Colao, Vodafone’s chief executive, committed some of his own money to the rally with the purchase of £600,000 worth of shares at the price of 219p per share.
“Vodafone’s results, and those of the other telcos this quarter, show that 4G is taking off and that pricing power is coming back to the mobile sector,” said Simon Weeden, analyst at Citi.
“This is even before Vodafone’s investment programme has had a chance to make an impact and is also before many customers have got hold of an iPhone 6 which promises to raise the 4G game further.”
The share price bounce in Europe coincides with analyst warnings that the US market might have peaked after a strong performance over the past few years. Morgan Stanley this week pointed to price wars in the wireline and wireless markets, where companies “generally delivered results in-line or slightly below expectations”.
JPMorgan on Tuesday said the European reporting season had “delivered material financial outperformance” underscored by unwinding regulatory cuts, softening deflationary pressures and in comparison with particularly poor results last year.
“But operators are also highlighting impressive mobile data volume trends,” it said. “And this growth phase has a long way to go.”
Mr Colao said: “We are becoming a little bit more like America,” referring to rising 4G data use in Europe after similar moves in the US. European data traffic rose 64 per cent in the last quarter against the same period last year, Vodafone said.
Many analysts expect service revenues to become positive in the next two years although Mr Colao declined to provide any guidance. He also cautioned about getting too carried away. Revenues were still in decline at Vodafone – as elsewhere in the sector – even if “slower than before”, he said.
Moody’s, the rating agency, will on Wednesday publish its 2015 outlook on the telecoms sector, which again is more optimistic. It will predict revenue declines will slow further next year to between 2 per cent to 0.5 per cent.
However, analysts at Moody’s also said that there were still problems for the sector, citing a combination of “tough competition, low economic growth and persistent contraction in consumer spending in their home markets continuing to pressure revenues”.