Today I am looking at why I believe Vodafone‘s (LSE: VOD) (NASDAQ: VOD.US) huge capex drive is set to propel earnings to the stars.
Investment plan bolsters multi-service strategy
Boosted by the proceeds of its $130bn summer sale of Verizon Wireless, Vodafone has a vast sum of money burning a hole in its pocket. And the telecoms giant has big plans for this capital, from building its mobile services across the globe through to increasing its stake in the unified entertainment services market.
Last year saw Vodafone enter the ‘triple-play’ services space by acquiring Germany’s Kabel Deutschland, the country’s largest cable network operator, for £6.6bn. And the company followed this up last week by purchasing Spanish cable giant Ono for £6bn, instantly giving Vodafone access to more than seven million households in 13 of Spain’s 17 major regions
Not only is the unified entertainment sector — which encompasses the broadband, television and telephone spaces — a hugely exciting market in 
its own right, but Vodafone also hopes this sector will boost its ailing European mobile operations by allowing it to bundle up its existing services with those of its new subsidiaries.
In light of these exciting synergy opportunities, speculation is rising that Vodafone is set to swoop for a domestic player such as BT Group or British Sky Broadcasting Group in the near future.
Such measures are a necessity given the firm’s enduring travails on the continent — a mixture of reduced consumer spending power and increased regulatory pressure forced group service revenues almost 10% lower during October-December to £6.5bn.
But Vodafone is also splashing the cash to boost its mobile businesses in potentially lucrative developing markets, and just last month forked out £1.9bn in India to secure spectrum licences and boost its 3G and 4G capabilities in the country’s largest cities. India has been a particularly successful hunting ground for the company, where it boasts 160 million users and rising.
Vodafone raised its £6bn Project Spring organic investment programme to £7bn in November, to be spread over the next two years to build its broadband, 3G and 4G network across the globe and grab onto galloping demand for high-speed data. Some £3bn of this has been earmarked for Europe in order to turn around the firm’s flagging fortunes in its largest market.
An exciting pick despite near-term pressure
Still, Vodafone’s heavy investment programme is not anticipated to yield immediate results, with City analysts expecting the telecoms giant to punch earnings falls of 4% and 26% for the years concluding March 2014 and 2015 correspondingly. However, these measures are expected to yield a modest 3% bounceback in 2016.
In all likelihood Vodafone is likely to experience further difficulties in the near-term as its European operations struggle. But in my opinion the company’s growing investment in the multi-services entertainment market, not to mention increased operations in underserviced emerging geographies, should significantly boost earnings over the long haul.
