Spanish telecom giant
Telefonica S.A.
(
TEF
) intends to spend €1.5 billion ($1.86 billion) to acquire spectrum
in the forthcoming UK auction, likely to be conducted by the
year-end.
The auction plans were announced last month by the UK regulator
Ofcom. The regulator will put two airwave bands -800 MHz and 2.6
GHz - on sale. The lower frequency band will be part of the digital
world and suitable for widespread coverage while the higher
frequency band will help in delivering higher speeds.
UK mobile operators getting the 800 MHz band will have to deploy
broadband to at least 98% of the domestic population by 2017. Ofcom
would try to balance the sale of airwaves between the largest and
small operators in order to keep prices low and ensure better
coverage.
The regulator said that the largest share would be received by the
three major operators -
Vodafone Plc
(
VOD
), Everything Everywhere (a joint venture between
France Telecom
's (
FTE
) Orange and T-Mobile) and Telefonica (O2 unit). The remaining
portion will be reserved for the small operators or new entrants to
increase competition.
The spectrum auction, considered the biggest so far in the UK, will
have 80% more spectrum than the 3G auction conducted in 2000.
Telefonica generated 11% of its revenue from the U.K. market in the
first half of 2012 despite intense competitive pressures. The
acquisition of the UK licenses would be long-term growth drivers
for Telefonica. The transaction will provide the company more
capacity to enhance its LTE networks to new markets. Currently,
Telefonica is deploying LTE services in Germany using the 800 MHz
and 2.6 GHz frequency bands acquired in the German 2010 auction.
Further, the company plans to double its revenue from the
Telefonica Digital division to €5 billion by 2015 from the current
€2.4 billion.
We are maintaining our long-term Neutral rating on Telefonica. For
the short term (1-3 months), the stock retains a Zacks #3 (Hold)
Rank.
FRANCE TELE-ADR (FTE): Free Stock Analysis
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TELEFONICA S.A. (TEF): Free Stock Analysis
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VODAFONE GP PLC (VOD): Free Stock Analysis
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