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Vodafone's Capital Outlay for Europe

Zacks Equity Research

Vodafone Group Plc (VOD) has reportedly disclosed its investment plans for Europe, in particular Italy. The company aims to dedicate a large part of its planned €6 billion investment to Italy. This leading telecom company plans to buy the full stake of Vodafone Italia after the influx of capital from its 45% stake sale in Verizone Wireless, the wireless division of Verizon Communications Inc. (VZ).

Vodafone, the world’s largest telecom service provider after China Unicom (CHU) is pursuing significant infrastructural development to expand its market presence in Europe and emerging markets. The company is mulling over buying Germany's biggest cable operator Kabel Deutschland Holding AG for around €7.7 billion. It is also eyeing the Italian fixed line operator Fastweb S.P.A in an attempt to bolster its landline and Internet assets.

Going forward, Vodafone is also working on spectrum acquisitions and secured spectrum licensing in the Netherlands, Ireland and India. The company is accelerating its 4G expansion and targets to cover five European markets in fiscal 2014. In Jun 2013, Vodafone launched LTE in Australia. Ongoing efforts to upgrade the existing network infrastructure should result in higher network efficiency and increased mobile data capacity.

In terms of product promotion, Vodafone is gaining significant momentum from its marketing its new pricing plan, Vodafone Red, which incorporates unlimited voice and SMS, increased roaming services, shared plans, early upgrades, cloud and other value added services. The company expanded Vodafone Red in 14 European markets with 4.1 million customers, representing its largest multi national marketing campaign for five years. The company aims to reach 10 million Vodafone Red customers by Mar 2014 with attempts to capture opportunities in emerging markets.

We believe the prospect of mobile data is better in emerging markets where Vodafone is expanding its presence through partner-market agreements. The alliance between Vodafone and Polkomtel is expected to enhance presence of the former in Eastern Europe, without any major investment, as the company will be offering its services via the local partner’s network.

Further, the company has also joined hands with China Mobile Limited (CHL) to form a consortium to bid for mobile license in Myanmar. The telecom giants are aiming to secure one of the two telecom licenses to rollout a nationwide telecom network in Myanmar. Given these positives, we believe the company will continue its growth trajectory despite economic overhangs.

Vodafone currently has a Zacks Rank #3 (Hold).

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