Convergence to Quad Play Reshapes Telecom
Europe leads the way in combining fixed-line and wireless telephony, broadband, and pay TV.
The European telecommunications market has been focused on triple-play services of fixed-line telephony, broadband, and pay television for some time. Now the convergence of those services with wireless into a quad play is increasing. We think this will strengthen operators' moats and be a big driver of margin improvement for the next couple of years. Given the small quad-play subscriber base in most countries, convergence represents a robust opportunity for the firms best positioned to capitalize on this trend.
Our favorite European telecom stocks are Millicom International Cellular (MIICF), Telefonica (TEF)/(TEF), and Orange (ORAN)/(ORA). Telefonica has been a leader in converged services in Spain and Brazil and is also benefiting from traditional in-country consolidation in Germany and the United Kingdom. Orange is leading the buildout of fibre in France, which is helping its convergence strategy. Millicom is benefiting from convergence in Latin America and has the fastest organic growth rate yet the lowest ratio of enterprise value to 2015 estimated EBITDA in our European telecom coverage.
Allan C. Nichols does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.