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European telecom giants Vodafone Group Plc. (VOD - Analyst Report) and Orange (ORAN - Analyst Report) have agreed to share network infrastructure in Romania. The tie-up is a manifestation of the network sharing trend among European operators to curtail capital investments.

Vodafone Romania and Orange Romania will jointly invest in 4G rollout, targeting speedier expansion at a lesser cost. The deal will allow the two operators to extend their reach in rural Romania thus providing an opportunity to tap the under penetrated regions of the European nation.

Both the companies will continue to compete against each other and the other four operators in the Romanian market, where Orange holds the top spot, followed by Vodafone. Additionally, both the companies will independently operate their spectrum and will have different core networks, which will differentiate their competitiveness.

The partnership, however, entails Vodafone or Orange to share each other’s backhaul infrastructure thus eliminating network duplication. Details about the financial synergies from the deal were however not divulged by either company. Notably, this is the second deal between the two telecom behemoths in Romania, where they already share cell sites.    

Telecom operators, in particular the Europeans, are entering into infrastructure sharing partnerships to reduce their capital burden on building their own LTE networks. According to rating firm Moody’s, European telecom operators are mulling over alternatives to enhance network capacity and improve their enormous debt burden.

Unprecedented adaptation of smartphones and other wireless devices has led to a huge surge in data demand, and Europe is no exception. This is exerting tremendous pressure on the networks of the European operators. We see the latest tie-up as mutually beneficial, allowing both Vodafone and Orange to deploy their LTE networks faster and reduce network pressure.

Both Vodafone and Orange currently carry a Zacks Rank #3 (Hold). Other companies within the sector that are worth considering are Turkcell (TKC - Snapshot Report) and China Unicom (CHU - Analyst Report). Both the stocks currently carry a Zacks Rank #1 (Strong Buy).

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