Telecoms giant Vodafone’s (LSE: VOD) £6.6bn bid for German cable telecom company Kabel Deutschland makes a lot of sense. Mobile-phone businesses across Europe are in decline due to weak economies and competition. To keep customers on board it’s becoming increasingly important to offer them a bundle of products.
Now Vodafone will be able to offer its German customers the so-called ‘quadruple-play’ package of mobile-phone, fixed-line phone services, broadband internet and pay TV. This business has a decent chance of growing, given that take up of broadband and TV from Kabel’s customers is currently quite low.
The trouble for Vodafone – and for its investors – is that it may have to replicate this German deal across its most important European markets and could be forced to pay high prices to do so. It’s by no means certain that shareholders will enjoy higher dividends as a result.
Elsewhere in the business, it is possible that Vodafone may get a better price than people expect for its 45% stake in US mobile operator Verizon Wireless and that this could boost the share price in the short term. But I think it faces a tough future due to ferocious competition in its markets.
At 187p, the shares offer a decent dividend yield of 5.7%, but the dividend payment is not likely to grow much. This makes the shares worth hanging on to for the income, but nothing more.
Verdict: hang on for the income