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Vodafone Group Plc (VOD - Analyst Report) announced that it has entered into a deal with German automobile manufacturer Volkswagen AG and its subsidiary Audi to supply connected car services in Europe. The services will be available via an embedded global SIM card in Audi cars from 2015. However, Vodafone did not disclose any information about when it plans to connect the Volkswagen cars.

Audi drivers will get high speed Internet access through Vodafone’s network and global machine to machine (M2M) platform. The SIM chip will be specially developed to meet the strict quality requirements of the automobile industry. Notably, in 2013, Audi S3 integrated an LTE (Long Term Evolution) capable infotainment system.

The M2M business is fast gaining popularity among telecom operators which have identified connected car business as a major area of focus.  According to a report by Machina Research, the number of connected cars will increase from 10% in 2013 to 90% in 2020.

Based on the growth prospect, operators are busy entering into alliances with auto makers to enhance their connected car business. Vodafone had previously signed a five-year connected car deal with German car manufacturer BMW to supply connectivity to the cars of the latter. In Apr 2013, the telecom behemoth inked another deal with India’s Mahindra Group to power its electric vehicle Reva.

U.S. based AT&T Inc. (T - Analyst Report) has also tied up with number of carmakers including big names like Chevrolet, Audi and Tesla Motors Inc. (TSLA - Analyst Report). The carrier has even launched a new automotive platform called Drive along with opening a new connected car centre in Atlanta.

This is not the first time that Vodafone is partnering Volkswagen. The carrier was selected by the carmaker in 2012 to supply mobile services to its 90,000 employees.

Given the gradual recovery in the European economy, this deal is expected to strengthen Vodafone’s position in the M2M business. Vodafone currently carries a Zacks Rank #3 (Hold). A better-ranked stock in this sector is Zacks Rank #1 (Strong Buy) SK Telecom Co Limited (SKM - Analyst Report).

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