Vodafone downgraded on EU threat

Vodafone Group Plc, the world's largest mobile-phone company, and Telefonica SA fell in European trading after Morgan Stanley said regulators will cut rates aggressively'' for calls between fixed and wireless phones.

 March 31 (Bloomberg) -- Vodafone Group Plc, the world's largest mobile-phone company, and Telefonica SA fell in European trading after Morgan Stanley said regulators will cut rates ``aggressively'' for calls between fixed and wireless phones.

Vodafone fell as much as 5.2 percent, the biggest drop in almost eight months. Telefonica, owner of the O2 wireless company, lost as much as 2.1 percent, the steepest decline in two weeks. Lower rates may cut European mobile operators' earnings before interest, tax, depreciation and amortization by 11 percent over three to four years, Morgan Stanley analysts including Nick Delfas wrote in a note today.

``Regulatory drags should therefore be seen as an incremental negative, in our view, and a real risk on earnings from 2009 onwards,'' according to the report.

Vodafone fell 7.7 pence, or 4.9 percent, to 149.3 pence as of 9:28 a.m. in London. Telefonica declined 34 cents, or 1.8 percent, to 18.20 euros in Madrid.

Delfas cut Vodafone to ``underweight'' from ``overweight'' and lowered his price estimate to 170 pence from 215 pence. Luis Prota lowered his price estimate on Telefonica, Europe's second- largest phone company after Deutsche Telekom AG, to 25.50 euros from 26.50 euros.

European telecommunications commissioner Viviane Reding called in November for national regulators to adopt a ``common approach'' to the rates, which are fees wireless companies charge rivals for routing calls to their own network. The European Commission, the EU's Brussels-based executive arm, will issue a recommendation in June that fees be cut ``aggressively,'' the Morgan Stanley analysts wrote today.

Source : Bloomberg.com