Vodafone Allies with Deutsche Telekom

Zacks

The German arm of Vodafone Group Public Limited Company (VOD) inked a service agreement with the nation’s communication major Deutsche Telekom. None of the companies disclosed the financial terms of the deal – that is pending approval of the Federal Network Agency.

Per the deal, Vodafone will offer high-speed broadband and television services via fixed-line across Germany, utilizing partner Deutsche Telekom’s VDSL based modified "Layer 3" (IP-based) bitstream network. This will enable customers to receive connection speeds of up to 50 Mbps along with Vodafone's on-demand and broadcast IPTV services. The speed is expected to reach up to 100 Mbps, after Deutsche Telekom rolls out vectoring technology.

The agreement calls for a more technologically advanced "Layer 2" (ethernet-based) bitstream product to be made accessible to Vodafone by Deutsche Telekom from 2016. Following this upgrade, Vodafone will be able to exercise a higher level of differentiation and regulation over the design and transmission of its services.

Since last year, Vodafone is concentrating on expanding its service offerings to maximum markets in Europe. This March, Vodafone tied up with Orange, an affiliate of France Telecom SA (FTE) to roll out fiber broadband services in Spain. Last year, Vodafone took over U.K. based multinational firm Cable & Wireless Worldwide, enhancing its product portfolio and broadening the customer base.

However, with this deal that aims to solidify Vodafone’s hold over the German market, the talked about acquisition of the country’ largest cable network company – Kabel Deutschland Holding AG – seems unlikely.

We believe that Vodafone displays a number of growth potentials including significant traction in emerging markets, network base upgrade and lucrative collaborations. The various alliances of the company are expected not only to foster its presence in the European telecommunication market, but also consolidate its competitive position against players like Liberty Global Inc. (LBTYA).  

Vodafone – which recently signed a contract with Cisco Systems Inc. (CSCO) – currently carries a Zacks Rank #3 (Hold).

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