Going Where the Growth Is

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Every company that is at least minimally diversified has its share of slow growth segments or sluggish regional markets. In the case of telecommunications companies, traditional telephony is a dying business just about everywhere you look, and wireless markets in underdeveloped nations still promise very attractive growth opportunities.

German giant Deutsche Telekom (NYSE: DT) is making good on its promises to boost growth with investments in international markets by taking a nearly 20% stake in Hellenic Telecom (NYSE: OTE). Based in Greece, Hellenic is a leader in the domestic communications services market with more than three-quarters of its revenue derived from its home country in the first nine months of 2007.

Traditional telephony in Greece isn't doing any better than the rest of the world, as Hellenic continues to lose lines there as well. But that's not what the German telecom giant is after.

The rest of its revenue comes from mobile services offered in surrounding southeastern European nations such as Romania, Bulgaria, and Albania, where the company is experiencing more rapid revenue growth. Hellenic sold off its majority stake in Albanian operator Armentel in late 2006 to Russia's VimpelCom (NYSE: VIP) to focus on these southeastern European markets closer to Greece.

Seems Deutsche Telekom has been peeking at rival Vodafone's (NYSE: VOD) playbook, which includes recent investments in mobile operators in regions to the east of western Europe, where communications markets are largely saturated. While developed markets sputter along with meager growth, Vodafone consistently sees double-digit growth from its emerging market investments.

The emerging market story is really no secret, though, and early investors in developing market kings such as China Mobile (NYSE: CHL) and America Movil (NYSE: AMX) have enjoyed years of market-beating gains.

As Deutsche Telekom is a little behind in the race to emerging markets, it also hopes to increase its stake in Hellenic beyond the stake announced yesterday. While it certainly won't cure all the regulatory and competitive headaches Deutsche Telekom is dealing with today, a successful investment in Hellenic will give the former monopoly more growth stories to share come earnings time.

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