European Telcos

Europeans telecommunications companies hit by prediction of lower rates

Shares of telecommunications companies including Vodafone, Deutsche Telekom and Telefónica fell in European trading Monday after Morgan Stanley said that regulators would cut rates "aggressively" for calls between fixed and mobile phones.

Vodafone, the world's largest cellphone company, fell as much as 6.1 percent. Deutsche Telekom, the region's biggest phone company, sank as much as 2.9 percent, to the lowest point in five years. Telefónica, owner of the O2 wireless company, lost as much as 2.1 percent, the steepest decline in two weeks.

Lower rates might cut European mobile operators' earnings before interest, tax, depreciation and amortization by 11 percent over three to four years, Morgan Stanley analysts, including Nick Delfas, wrote in a note to clients.

"Regulatory drags should therefore be seen as an incremental negative, in our view, and a real risk on earnings from 2009 onwards," the note said.

Vodafone closed down 6.1 pence, or 3.89 percent, at 150.9 pence, or $3, in London. Deutsche Telekom retreated 7 cents, or .66 percent, to close at €10.61, or $16.77, in Frankfurt.
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Telefónica declined 34 cents, or 1.83 percent, to €18.20 in Madrid.

Portugal Telecom dropped 21 cents. or 2.71 percent, to €7.36 in Lisbon, the first decline in a week.

Delfas cut Vodafone to "underweight" from "overweight" and lowered his price estimate to 170 pence from 215 pence.

Luis Prota lowered his estimate on Telefónica, the second-largest European telephone company after Deutsche Telekom, to €25.50 from €26.50. He lowered Portugal Telecom to €8.50 from €9.

"Sentiment for the industry that was seen as a safe haven has dimmed as intensifying price competition made investors realize telecom shares don't offer risk-free returns," said Philipp Musil, who helps oversee more than $24 billion at Constantia Privatbank in Vienna. "Negative research notes amplify the disenchantment."

In November, the EU telecommunications commissioner Viviane Reding called for national regulators to adopt a "common approach" to the rates, which are fees that wireless companies charge rivals for routing calls to their own network.

In Brussels, the European Commission, the EU executive arm, will issue a recommendation in June that fees be cut "aggressively," the Morgan Stanley analysts wrote Monday.