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Stock Strategist

Telefonica Leads Europe in Move to Converged Services

The company is now set for improving margins and returns on capital.

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 Telefonica (TEF) is the incumbent telephone operator in Spain and one of two dominant operators in Latin America along with America Movil (AMX)/(AMOV). Thanks to its acquisition of E-Plus in Germany, it is the largest wireless operator by number of subscribers in the country. It is also the second-largest wireless operator in the United Kingdom.

Beyond its size, which provides Telefonica with scale by spreading its fixed costs over a large number of subscribers, we like the company’s move into converged services, bundling fixed-line services with broadband, pay television, and wireless telephony. The company has been the leader in this movement, which positions it well to benefit from this momentum-building trend.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.