OTE's Strategic Momentum in Fiber and 5G Drives Sustainable Earnings Growth

In the evolving European telecom landscape, OTE Group (OTE) stands out as a strategic consolidator and innovator, leveraging Greece's urgent need for digital infrastructure to drive long-term value. With a €2.5 billion investment plan since 2019, OTE has positioned itself as a cornerstone of Greece's broadband and 5G rollout, aligning its capital allocation with structural demand for next-generation connectivity. For investors, the company's accelerating FTTH expansion, 5G market leadership, and disciplined capital management present a compelling case for sustainable earnings growth and shareholder returns.

FTTH Expansion: A Catalyst for Recurring Revenue

OTE's Fiber to the Home (FTTH) network has become a critical differentiator in its strategy. As of Q1 2025, the company's FTTH network has passed 1.8 million homes and businesses, with a utilization rate of 29% and 430,000 active subscribers. This represents a 36,000-subscriber addition in the first quarter alone, underscoring strong demand for high-speed broadband. By year-end 2025, OTE plans to expand coverage to 2.1 million premises, supported by €223 million in EU funding for its Ultra-Fast Broadband project.

The economic rationale is clear: FTTH offers a sticky, high-margin revenue stream. OTE's fixed broadband segment now includes services like 1 Gbps internet, fiber-based TV, and business connectivity, which are less cyclical than mobile services. With Greece's digital transformation goals—such as connecting schools, transportation hubs, and public buildings—OTE is not just building a network but creating a digital ecosystem that locks in customers and generates recurring cash flows.

5G Leadership: Capturing the Future of Connectivity

OTE's mobile arm, Cosmote, holds a 55% market share in Greece and is leading the 5G rollout with 50% population coverage achieved by Q1 2025. The company is decommissioning 3G networks and deploying 5G Stand-Alone (SA) technology, a critical step for enabling low-latency applications like IoT and smart cities. This positions OTE to benefit from Greece's EU Digital Decade 2030 targets, which require 5G coverage for 80% of the population by 2025.

The financials reflect this momentum. Despite a 23.9% drop in free cash flow to €96.7 million in Q1 2025, driven by capex, adjusted EBITDA (After Lease) rose 1.0% to €329.1 million. This resilience highlights the company's ability to balance near-term investment with profitability. With 5G SA networks enabling new revenue streams—such as enterprise solutions and industrial automation—OTE is poised to monetize its leadership in a sector with long-term growth potential.

Disciplined Capital Allocation: Balancing Growth and Returns

OTE's capital allocation strategy is a masterclass in balancing reinvestment and shareholder returns. The company's 2025 guidance includes a €153 million share buyback program and a proposed €0.7216 per share dividend, reflecting confidence in its cash flow generation. While net debt increased 7.8% to €561.7 million, the payout ratio remains conservative, and the company's 16.9% net income margin in Q1 2025 underscores its ability to fund both growth and returns.

Historical data on dividend consistency further reinforces this narrative. A backtest of OTE's dividend performance from 2022 to the present reveals a stable dividend yield of approximately 2.35%, demonstrating the company's commitment to returning value to shareholders. This consistency, combined with a disciplined approach to capital deployment, positions OTE as a reliable long-term investment.

The €2.5 billion investment plan since 2019 is not just about scale—it's about strategic alignment. By leveraging EU grants and prioritizing high-ROI projects, OTE is minimizing dilution and maximizing returns. For example, its network-sharing initiatives reduce costs while accelerating deployment, a model that could be replicated in other European markets.

Investment Thesis: A High-Conviction Play in European Telecom

OTE's strategic alignment with Greece's digital infrastructure needs creates a unique value proposition. The company is not only capitalizing on structural demand but also building a moat through its FTTH and 5G leadership. For investors, the key risks include regulatory shifts and capex overruns, but OTE's disciplined approach—evidenced by its 11 European research projects and early 5G demonstrations—mitigates these concerns.

With Greece's broadband and 5G markets expected to grow at a CAGR of 8-10% over the next five years, OTE's current valuation appears undemanding relative to its growth trajectory. The stock trades at a discount to peers like Deutsche Telekom and Vodafone, despite superior margins and a more aggressive infrastructure roadmap.

Conclusion: A Win-Win for Greece and Shareholders

OTE's dual focus on infrastructure modernization and shareholder returns makes it a standout in the European telecom sector. By investing in FTTH and 5G, the company is not only addressing Greece's digital divide but also creating a platform for recurring revenue and margin expansion. For investors seeking exposure to the next phase of Europe's connectivity revolution, OTE offers a compelling blend of strategic vision, operational execution, and financial discipline.