By Philip Waller
Date: Wednesday 18 Jun 2014
LONDON (ShareCast) - BT and Virgin Media owner Liberty Global offer investors the best way to cash in on fixed-line telecom companies' assault on the mobile market, according to broker Goldman Sachs.
Goldman said fixed-line players such as BT, which plans to launch business and household mobile products later this year, were driving convergence in the market by using their superior assets to enter mobile.
BT, which spun off its BT Cellnet mobile business in 2001, plans to use its wi-fi network to develop a mobile service and last year bought a chunk of 4G spectrum suitable for use in buildings.
Goldman said using wi-fi is cheaper than setting up an entirely new mobile communications network, while innovation is set to improve wi-fi services.
Material opportunity
The US broker also says mergers and acquisitions remain a "material opportunity" for well-placed fixed-line players.
French broadband and mobile operator Iliad would benefit materially from any consolidation scenario in France and Telecom Italia (TI) is "the only incumbent that doesn't face a fixed insurgent threat into its mobile market".
Goldman is advising investors to buy BT, Liberty, Iliad and TI.
"We see BT and Liberty as the best ways to play convergence and the mobile opportunity for fixed-only players. Liberty is also a likely consolidation beneficiary," it added.
Vulnerable Vodafone
Goldman has a 'neutral' rating on Vodafone, which it says is taking the right steps to mitigate the fixed-line threat it faces in several key markets such as Germany and Spain, where it has bought cable operators.
It said Vodafone believed the risk posed by fixed-line players planning to use wi-fi for mobile services was overblown because consumers increasingly switch off wi-fi when they shift to better-quality 4G services.
As marginal costs for extra radio capacity are low, Vodafone is making its bundles far larger, making buying more data cheaper.
But it said the company appeared vulnerable in markets where it lacks fixed infrastructure such as the UK and the Netherlands, which has sparked speculation that it could merge with a company such as BSkyB.
Shares in BT rose 1.6p or 0.4% to 384.3p at 11:41 in London, while shares in Vodafone lifted 2.75p or 1.4% to 198p.
PW
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