BT vs Vodafone: Competing Strategies Fuel Investor Sentiment

The two largest telephony companies in the UK are facing similar challenges as Britons cut costs and mobile leads to more cord-cutting.

BT and Vodafone Tackle Financial Woes

Being in the UK telecom business has been a challenge this year. While shares of the two giants, BT and Vodafone, have been trading lower lately, BT still manages to hold on to the green so far this year. Some analysts might point to that having to do with the timing of the highs and when the companies broke some bad news to investors. Vodafone peaked in March this year, trending lower ever since. On the other hand, BT hit its top in late April, also trending lower.

Both firms have announced laying off workers and incorporating AI to trim expenses over the same period. While the expectation for improved profitability might assuage some investors, the fact that such cost-cutting is needed would make others more worried. In that context, BT's 55K job cuts seem to be much bigger than Vodafone's 11K - but the former's cuts are related to planned reductions following the completion of the 5G roll-out, which required substantial additional staff to build up the infrastructure.

Diverging Paths to Overcome Challenges

One of the things that BT has, but Vodafone does not, is a partner looking to raise its stake in the firm. As BT shares have depreciated, Altice has been looking to beef up its stake. The French firm dismissed any intention to take over the UK telecom giant, but it sees some value in BT, and the share purchases can be seen as supporting the stock price. On the other hand, Vodafone is tying up with its rival Hutchison to become the largest mobile provider in the UK. But investors don't seem so happy with the deal, considering the announcement barely helped lift shares over the 25-year low they fell to before the deal was reached, and share prices resumed falling afterwards.

Unlike BT, which has spent considerably in expansion, Vodafone seems intent on selling out of the current situation. Recently, it was reported that it was looking to sell off its Spain unit, and before that, it was looking to divest its interest in IoT. On the other hand, its largest stakeholder, Emirates Telecommunications (e&), is a relative newcomer, starting buying up shares in May of last year, and has taken up to 14.6% in the company and could go for the maximum of 25%. In the end, though, it could be a matter of timing since BT is implementing its 5G network while Vodafone is still in the phase of pledging to invest.

BT Group Between Formations

The share price of BT reveals a complete head-and-shoulders pattern in the medium-term horizon, suggesting an imminent upward reversal without a drop under the swing low at 110p. Typically, H&S patterns correct 61.80% (in this case from 110 to 160, implying a price tag of around 141p), with the downward extension increasing the chances of seeing a wedge instead. The wedge pattern would witness further declines towards the next logical significant support level at 100p, while the immediate reversal would experience an upward leg towards the top and beyond, with temporary resistance at 135p and 150p.

Source: SpreadX / BT Group

Key Takeaways

BT and Vodafone, the giants of the UK telecom industry, are confronting similar challenges, such as cost-cutting measures and the evolving landscape of mobile and cord-cutting services. However, their strategies diverge, with BT focusing on expansion fueled by investments in 5G, while Vodafone looks to divest and form partnerships to combat its depreciating shares.