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Vodafone vs. BT share price: why are investors hanging up on telecoms?

The two UK-listed telecoms companies have struggled of late as they contend with both having to contend with Brexit uncertainty and intense competition both at home and abroad.

Over the last 12 months, the two UK-listed telecoms providers have had their struggles, a fact reflected in their share price, with Vodafone and BT seeing their stock slide more than 14% 25% respectively.

IG looks at why investor appetite for the pair has waned in recent months.

Vodafone and BT struggle to keep costs down

The telecoms sector is known for having a tough time keeping capital spending down compared with other industries, with businesses regularly needing to pay for maintaining existing infrastructure and expanding their asset base.

‘Over the last 5 years BT and Vodafone have, on average, spent about 15% of revenues on capital expenditure,’ Hargreaves Lansdowne equity analyst George Salmon said. ‘The average for the FTSE 350, excluding REITs and investment trusts, is around 7-8%.’

Both companies also fork out billions each year on the transmission of mobile data, with Vodafone spending around €15 billion over the last five years across its domestic and international businesses.

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Price competition intensifies in mobile market

Vodafone and BT both boast a strong presence in the mobile market, an area where the two companies compete fiercely, with the pair having good coverage across major urban areas both in the UK and abroad.

As such, there is little to separate the two networks in terms of coverage for consumers, so the two compete heavily on price, leading to margins being squeezed for both companies and putting significant pressure on their bottom lines.

Vodafone and BT plot different paths for growth

As the two telecoms companies look to regain the value their respective share prices have lost, they have chosen to embark on two very different paths.

BT has chosen to focus its attention on the UK market, with it retreating from Ireland earlier this year, selling its corporate client-focused unit in a deal valued at £400 million.

It is also pinning its growth story on rolling out broadband throughout the UK, with the government looking to BT bring superfast internet to the whole country by 2025.

Meanwhile, Vodafone has invested heavily in European expansion, with the telecom provider hoping that its fortunes in the continent will improve over time, despite being relatively sluggish over the last 12 months.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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