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European mobile communication giant Vodafone Group Plc (VOD - Analyst Report) recently tied up with Orange, an affiliate of France T , to roll out fiber broadband services in Spain. This partnership is also open for third-party participation.
The partners have jointly agreed to invest nearly €1 billion or $1.3 billion for the fiber-to-the-home (FTTH) network program. With the launch scheduled in Jan 2014, the services are expected to cover 800,000 premises by Mar and reach 3 million homes in Sep 2015. The long-term goal of the operators is to bring 6 million households and workplaces across 50 major cities under its coverage by Sep 2017, representing residential market capture of about 40%.
The collaboration permits Orange and the Spanish arm of Vodafone to spread their respective street-level fiber as well as in-building fiber across the nation. Interestingly, each company will have access to each other’s broadband lines that will be laid out based on the same technical specifications. This will enable the total infrastructure to function as a single network.
This alliance displays the companies’ endeavor to render high-speed unified communications services to the Southern Europe region as fiber-optic cable transmits broadband signals faster than conventional Internet connections via telephone lines. Hence, customers will experience better and quicker internet accessibility while watching movies or playing games.
Through this initiative, Vodafone is working toward fortifying its foothold in Spain – the fourth-largest economy in Euro zone – where it had been losing customers steadily over the last few years, primarily due to recession and subsequently, less spending power in the hands of the people.
However, the broadband scenario of the country looks encouraging with the number of subscribers rising in the past few months. Additionally, the territory promises significant growth potential with respect to fiber deployment with comparatively less coverage versus other European countries.
Independently both Orange and Vodafone were finding it difficult to compete with the wide-spread fibre optic network of Spanish behemoth Telefonica S.A. (TEF - Analyst Report). But, for the successful implementation of the newly formed agreement, Orange and Vodafone will have to seek help from Telefonica’s connections. The companies plan to approach higher telecom regulatory authority in the absence of cooperating actions from Telefonica.
This billion dollar venture is expected not only to consolidate the pedestals of Vodafone and Orange in the telecommunication sector of Europe but also sharpen their competitive edge over other players such as Liberty Global Inc. (LBTYA - Analyst Report).
While France T carries a Zacks Rank #2 (Buy), Vodafone holds a Zacks Rank #3 (Hold).