Telefonica S.A. (ADR) (TEF), Telecom Italia SpA (ADR) (TI): Expect Better Performance From This Telecom Company

Slim’s abstention had everything to do with pricing. He wanted a better deal despite knowing that KPN’s market position in Germany was truly weak given the company’s lack of sufficient 4G spectrum that it needed to compete. Now, KPN will get up to $6.5 billion in cash plus a 17.6% stake in the combination between E-Plus and Telefonica Deutschland.

Fair operational prospects

Thanks to a consolidating industry, European telecom companies should start performing much better in the medium term. Not only Telefonica will benefit from this trend. All other players, such as KPN, should also benefit through selling their weaker businesses (such as Germany, where KPN was not going to achieve its market share targets) to concentrate on their stronger markets (such as the Netherlands in KPN’s case, where the company is a strong player).

All the above being said, market pressures should continue until the end of next year when I expect the mobile phone market to have less players and the European economy to be in better condition. Since Telefonica and KPN should be reaching their debt targets by 2014, I also expect this companies to resume their dividend payments.

Foolish conclusion

After years of under-performance relative to their American peers, it looks like European telecom companies are ready to catch-up. The macroeconomic situation is not helping as much as I would wish, but consolidation will be a powerful force behind the stabilization of mobile and broadband rates in the Euro-zone. Telefonica S.A. (ADR) (NYSE:TEF) should be one of the main beneficiaries of this up-and-coming trend.

The article Expect Better Performance From This Telecom Company originally appeared on Fool.com and is written by Federico Zaldua.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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