NOS rating hit by Vodafone fibre deal with Portugal Telecom

Vodafone's announcement that it is teaming with Portugal Telecom to boost fibre coverage in Portugal is bad news for NOS as the move undermines the domestic rival's chances of being re-rated following a downgrade in January, according to analysts.

The UK-headquartered operator revealed on Monday it has agreed a fibre sharing deal with Portugal Telecom covering a total of 900,000 homes, split evenly between the two companies. The agreement is due to come into effect in December and run for 25 years.

Vodafone's European CEO, Philipp Humm, said the deal "accelerates our fibre-to-the-home rollout plans and enables us to bring converged products and services to almost half a million more homes and businesses across Portugal."

However, it is those 'converged' services that gave Jefferies analysts pause for thought when it comes to local rival NOS, until recently known as Zon Optimus.

In an emailed statement, Jefferies noted that Vodafone has fulfilled two action points it cited as potential routes to it combating fierce competition in Portugal from NOS and Portugal Telecom--namely revamping its "underwhelming TV product", and agreeing a wholesale fibre deal with Portugal Telecom.

When combined with reports of a refresh of Vodafone's digital TV service, Jefferies sees "two catalysts for an intensification in competitive pressure in Portuguese fixed as now crystallised."

The company downgraded NOS in January due to concerns about competition, particularly from Vodafone, but had been considering re-rating the company towards a sector multiple of 6.0x2014 EV/EBITDA based on its forthcoming second quarter results. Jefferies explained, however, that the deal between Vodafone and Portugal Telecom diminishes "appetite for a re-rating" as NOS results are "likely to be dominated, once again, by concerns over the Vodafone threat."

Vodafone's fibre coverage stands at 1 million homes in Portugal, and the company will leverage its Portugal Telecom wholesale agreement to lift its total goal from 1.5 million homes passed to 2 million by end-2015. The company stated the main benefit of the deal is in cutting its time to market.

Jefferies pointed out, however, that the wholesale deal doesn't actually provide coverage to new homes and businesses in Portugal, instead offering access to "an incremental 450k homes each."

For more:
- read this Vodafone statement

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