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Vodafone and Portugal Telecom Sign Fiber Network Agreement

Recently, Vodafone and Portugal Telecom revealed the two companies had come to an agreement to install and share a fiber network that would serve a minimum of 900,000 Portuguese homes. The agreement will be enforced for 25 years and will start in December 2014. After their announcement, Portugal Telecom stock gained 7.3 percent, while Vodafone saw a slight decline. After analyzing the conditions of the deal, analysts feel that Vodafone stock is undervalued in comparison to Portugal Telecom, whose shares are priced fairly.
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Vodafone’s integrated telecom strategy and their plans to bring a fiber network along with various products and services to 2 million Portuguese homes and business by the end of 2015, will definitely benefit from this agreement. Analysts feel confident in Vodafone, especially since the company has already met their target of 1 million. Vodafone is expanding its network so that, by the end of 2015, they will be able to connect to almost 2 million homes.

This agreement would give Portugal Telecom access to 2.1 million homes, expanding their coverage, while Vodafone
would be at 1.5 million homes by comparison. The agreement between the companies is limited to sharing the network as they will be independent in the price offers and plans, thereby competing for the same customers. Portugal Telecom’s “time to market” will decline considerably, and Vodafone Portugal will be able to offer high-speed broadband, television services, and fixed telephony, thereby increasing their potential customer base.

At the moment, Vodafone has 5.4 million mobile customers, 240,000 customers for their fixed broadband services, and 190,000 customers for their television services. Following the German and Spanish model, Vodafone won’t have to invest in a buying a cable operator. The companies will be able to allot these funds to improved marketing as well as the creation of bundled service offerings, such as fixed-line and wireless telephony, television and broadband. Both companies goal is to be the most successful at selling all four services to the same customer. This deal will accelerate the roll-out of the network as well as cementing the two companies’ ability to compete against each other as cable television operators.

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