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REUTERS/Luke MacGregor (LUKE MACGREGOR/REUTERS)
REUTERS/Luke MacGregor (LUKE MACGREGOR/REUTERS)

Telenor, Vodafone expected to outperform rivals Add to ...

Norway's Telenor and Britain's Vodafone are expected to outshine their European telecom peers as the sector struggles with weak economies and forced price cuts.

Analysts are braced for a slew of poor second-quarter results, starting with Nordic operator TeliaSonera on Wednesday.

The economic weakness that hit telecom companies in southern and eastern Europe at the start of the year shows no signs of easing, while at the same time regulatory price cuts have continued to eat into margins across the continent.

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Telenor and Vodafone's exposure to fast-growing emerging markets and early success in making money out of mobile data should help them stand out, analysts said.

"We expect ongoing, sector-leading growth from Telenor, driven by its international footprint that should more than offset pressure in Nordic markets," Deutsche Bank said.

It added that Telenor, which is due to publish results on July 21, may launch another share buyback.

Investment bank Espirito Santo said it was upbeat about Vodafone.

"We are braced for an extremely tough quarter across the whole sector, and believe Vodafone will deliver much better growth than almost all other large-cap telcos," the bank said.

By comparison, Nordic operator TeliaSonera will be burdened by "intense competition in Nordic mobile, sluggish recovery in the Baltics and new price caps in Eurasia," Deutsche Bank said.

The Swedish company has already said it would axe around 800 jobs this year as part of its cost-cutting plans and efforts to combat fewer handset sales and lower service revenue in its Nordic and Baltic state operations.

Telcos that largely depend on home markets in eastern and southern Europe will likely show a larger decline in sales and cash-flow, Bettina Deuscher at Landesbank Baden Wuerttemberg said.

Espirito Santo said it expects some operators to cut forecasts after a weak second quarter.

Meanwhile, investment bank Jefferies argued that structural pressures - such as the ongoing price decline in traditional voice calls and text messaging - are intensifying, while the business with smart phones and the demand for the data they generate may not have the potential to compensate.

It warned that the typical pick-up in the second half of the year could not be counted on.

"Given … attractive cash returns and the historic second-half outperformance, it might be tempting to emphasize the sector's defensive credentials. That temptation should be avoided," Jefferies said.

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