The Vodafone vs BT share price: which stock is more attractive?

Key points

  • The Vodafone and BT share prices both look cheap
  • These two groups are similar in some ways but very different in others
  • One company stands out as having better growth prospects in the long run

The Vodafone (LSE: VOD) and BT (LSE: BT.A) share prices have similar desirable qualities. They are both telecommunications companies with tempting income credentials and currently look cheap. 

However, there are a couple of crucial differences between these two businesses, which suggests to me that one could be the better buy for my portfolio. 

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BT share price qualities 

BT is the largest fixed-line and broadband provider in the UK. This makes the company a highly defensive investment. Unfortunately, its position in the market is under threat. Smaller, more nimble competitors have been edging in on its turf for years. Even Vodafone is trying to grab a share of the market. 

The organisation has responded by ramping up capital spending and launching a customer services blitz. This is starting to yield results. Analysts are forecasting a return to growth for the business over the next two years. 

Vodafone is facing similar challenges in its European and international markets. It is having to spend a lot of money fighting off competitors. Still, its global footprint gives the group an edge over smaller peers. Not only does the company have more financial resources to support growth, but it can also offer consumers a more comprehensive range of services. 

I think this international footprint is the company’s primary advantage over BT.

Vodafone growth potential

The international telecommunications giant also appears to have more room for growth. Unlike BT, which is having to spend money consolidating its market position, Vodafone can focus on expansion in some of its key markets. 

One of BT’s mistakes over the past decade is under-investing in its network. This means it is having to play catch-up to the rest of the market. Vodafone has not made the same mistake. Over the past decade, it has spent tens of billions of euros building a network for the 21st century focused on data services. 

That is not to say the business can rest on its laurels. It is going to have to continue to invest to stay ahead of the competition. Nevertheless, it is another reason why I think Vodafone has more potential than the BT share price. 

Regulatory headwinds

Unlike Vodafone, BT also has to worry about regulatory headwinds. The telecoms sector in the UK is highly regulated, and as the most powerful player in the country, BT gets most of the attention. It has come under fire for not investing enough in its broadband network and was forced to legally separate from its Openreach infrastructure business several years ago. 

Vodafone has to meet regulators’ demands, but it has far more freedom to operate as a small business with a lower market share than BT. 

As such, I think Vodafone has more potential than the BT share price over the long run. I think it could make a great addition to my portfolio as a way to invest in the growth of the data economy across Europe and around the world. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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