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Boost Your Share Price with a Telco 2.0 Strategy

Warning: The following does NOT represent investment advice. Past performance is NO guarantee of future success. Before investing in any stocks, we recommend you speak to your stockbroker or independent advisor.

We have often held up BT as a great example of a Telco that is ahead of the competition in moving to a Telco 2.0 world. Similarly, whilst pointing out the competitive threats from muni-nets, James Enck has praised KPN for its reporting transparency and Telco 2.0-style ‘Pipe’ strategy with its Direct ADSL tariff.

I thought it might be interesting to see whether the Telco 2.0 strategies adopted by these incumbents have been borne out in stronger share price performance over the last 2 years. I selected 2 other traditional incumbents: France Telecom and Deutsche Telekom, as well as Vodafone from the mobile world. Vodafone, although it has a stronger mobile bias than either FT or DTAG, does have similar scale and has been associated with a strong Telco 1.0 strategy.

For reference, I also added the internet player and stockmarket darling, Google.

The results are very interesting:


Looks like a very clear split between the Telco 2.0 duo and the Telco 1.0 brigade! I did a quick check by also looking at Telefonica and Telecom Italia. Telefonica falls roughly half-way between the two camps and Telecom Italia tracks the Telco 1.0 group.

Now it is very different to distinguish between ‘fundamental’ (operational and financial) drivers of share price and non-fundamental drivers such as bid rumours. Rumours about private equity takeovers of some of these companies have been circulating for a while and have clearly affected share prices. It was for this reason that we specifically excluded TeliaSonera from the analysis.

However, overall it looks like investors like what KPN and BT are doing. Key question for investors now, I suppose, is whether to keep investing in the Telco 2.0 duo or buy the out-of-favour Telco 1.0 players and hope they move quickly down the Telco 2.0 route.

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