Vodafone Group Plc (ADR) (NASDAQ:VOD) has announced that it plans to spend roughly 2 billion euros towards building a new and fast fiber network that will provide broadband to businesses and homes in Germany.
The company made the announcement on Monday, revealing the plan to invest the massive amount towards expanding its fiber network in Germany. The 2 billion euros is estimated to be enough to connect about 100,000 firms located in 2,000 business parks in the European country. This will require an investment of 1.4 to 1.6 billion euros while 200-400 billion euros will be used to bring connectivity to more than 1 million households through partnerships with municipalities.
Vodafone plans to carry out the investment over the next four years and its plan is to create a total of 13.7 million new connections for German businesses and homes. The plan presents itself as a huge threat to local ISP, Deutsche Telekom which happens to be the largest in the European market. Vodafone plans to offer speeds as high as 1 gigabit per second. Analysts claim that the strategy to be used by the company will be characterized by low up-front costs and freed-up cash flow that will not affect dividend payouts.
"The investment risk is mitigated by working with partners to 'co-invest' and should leave Vodafone's dividend growth unaffected," stated Jonathan Dann, an analyst at RCB.
Vodafone revealed that the planned investment in Germany will provide significant growth to its service revenue and that the investment should pay for itself over a period of four to six years. Dann also pointed out that the planned investment will put a lot of pressure on rival ISP, Liberty Global. The latter had expressed interest in acquiring the second largest mobile operator in the world but the price for a potential acquisition was not disclosed. Jefferies analysts also believe that the German investment by the British firm makes a lot of sense from a strategic point of view.
Vodafone stock closed the latest trading session on Monday at $28.92 after a 1.47 percent gain compared to the value of the stock during the previous close.
