European Telecom Industry Gets Mixed Signals From Investors — Talking Markets
Some investors are dialing up their bets on large European telecommunications companies, but shares struggle to recover previous highs amid a challenging near-term industry outlook due to muted top-line growth, stiff competition and heavy investments, analysts say. The sector is in the middle of a costly transition to upgrade its infrastructure to 5G technology and to replace copper with more modern fiber-optic cables that transmit data faster. This, together with a combination of challenges that include weak revenue trends due to competition and high debts as a result of past mergers and acquisitions, have weighed on European telecom stocks.
Among Europe’s five largest telecom operators by market capitalization, only Deutsche Telekom’s shares trade clearly above their prepandemic level. The company’s T-Mobile US subsidiary makes it the only European telecom company with exposure to the U.S., which together with China are the global economic growth engines, Deutsche Bank analyst Robert Grindle said. “They have done very well having enjoyed a better environment for telcos in the U.S.
than in Europe. The U.S. economy has been stronger than in Europe and in that market there are fewer players and T-Mobile US has gained share," Grindle said.
Meanwhile, shares in Telefonica, Orange and Vodafone haven’t returned to levels before the pandemic. While Swisscom’s stock exceeded prepandemic levels in 2022 and earlier this year thanks to investors’ perception of the company as a relative safe haven, a recent pullback due to competition fears in its home market left it trading roughly where it was in February 2020. At 1006 GMT, the pan-European Stoxx Europe 600 Telecommunications sector index is up 5.5% year to date, but lags behind
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