Investors asking the question “How does this whole mess in Europe affect my portfolio?” could do well to educate themselves by recent bleak developments in the region’s mobile industry.
As blogger Tero Kuitinnen recently recounted, disappointing second-quarter results last week from the world’s largest mobile carrier, Britain’s Vodafone (VOD), dealt a blow not only to its own investors, but delivered a haymaker to shares of Spanish carrier Telefonica (TEF), which sank 8.5% on Friday, and hit a 52-week low on Monday.
Why the hard hit for Telefonica? Kuitennen reports that Vodafone’s report revealed that its Spanish unit saw a 10% revenue decline in its recent quarter.
As bad as that is, a worse metric may have been the idea that Vodafone saw nearly 4% of its Spanish subscriber base – 640,000 of them – leaving its service. Not moving to cheaper plans, leaving. Period.
While the company saw voice revenue drop and data revenue exhibit sluggish growth, messaging revenue showed significant growth. As Kuittinen says, financially stressed Spaniards may be moving to prepaid plans as well as moving a bigger share of their mobile communication to text from voice.
Vodafone’s Spanish subscriber base comprises 38% prepaid customers, Kuittinen reports, well above the 25% average in the US.
With retail sales index readings in some European countries below where they were 10 years ago, Kuittinen calls this an “experiment in deep recession economics — how does consumer behavior change under these extreme circumstances?”
For investors in telecom and mobile internet stocks, the other question is whether expectations of handset and data growth are increasingly unrealistic.