Hello. Welcome to Company Focus. My name's Aamer Nawid. I'm an analyst at Fat Prophets. And today, we're going to be taking a look at the main players in the UK telecommunications market.

Given that the tie-up between UK operators Orange and T-Mobile has been granted EU approval, I think it's quite a good time to visit this particular area. Over the years, revenue and earnings for the telecommunications sector has gravitated away from fixed-line business to the more mobile telephone end of things, as well as now internet data usage.

Now, regular viewers will be aware that I'm a big fan at the moment of defensive areas, of the market - I still think there are plenty of question marks out there regards the health of the global economy. I believe that defensive areas will find increasing favour throughout 2010. now, telecommunications specifically falls under this bracket; however, whether - however if you look at the recent performance of the telco sector versus the broader market, investors will be scratching their head a little bit, wondering if this is the case.

It looks as though investors are sitting on the sidelines, ignoring the strong dividend yields on offer, and sort of focusing in on the increased competition and falling customer prices, which means that they feel that the outlook remains uncertain.

The UK market is an important battleground. It's one of Europe's largest mobile phone markets.

France Telecom and Deutsche Telekom, through Orange and T-Mobile, have now seized over a third of the market share. Telefónica has been nudged down into second place, while Vodafone sits in third.

For all the talk of falling voice revenues, it is important to note that France Telecom, in the move, is actually trying to steal a march on the UK market, and it's not resuscitating an ailing business, so to speak.

2009 results have been fairly buoyant. Okay, profits fell by 26 per cent, however, if you look at the actual fall in revenues, it was relatively moderate, under 2 per cent. And the company actually managed to increase its customer numbers by 6 per cent.

The fall in profits was mainly due to a charge which related back to illegal tax benefits the company received before 2003. So nothing wrong at all operationally or within the company.

T-Mobile parent Deutsche Telekom also had a fairly decent 2009, all things considered. The company's top line was resolute. Sales were up by 5 per cent, and operating margins were higher than 2008 levels. However, the bottom line was impacted by write-offs associated with T-Mobile UK as well as Southeastern Europe.

For Telefónica, the company is about to be knocked off its perch in the UK. However, management are generally content with the situation for the company as a whole. Spain, their domestic economy is hitting in the headlines at the moment for the tough economic conditions that prevail in there. But it doesn't seem to have dented revenues at Telefónica too badly, with a fall of 1.6 per cent in revenues for the fourth quarter of 2009. Overall, the fourth quarter net profit was up by 22 per cent, and in Europe outside Spain, the company would have posted an increase in revenue of 0.2 per cent on a constant currency basis.

As for Vodafone, there are signs that the outlook is ticking up there also. Fourth quarter of 2009 revenue was up by 10 per cent, and that's no mean feat, given the prevailing economic conditions. Even though voice revenue in Europe is set to decline after the recession, Vodafone's earnings will be underpinned by an increase, again, in the popularity of smart phones and the associated data usage. Vodafone also have an emerging markets angle, having ramped up their presence in India, Qatar and Egypt.

Telefónica, meanwhile, are big in Latin America, whilst France Telecom virtually increased their African customer base from 6m to 42m in just five years.

Overall, I'm still a big fan of the telecommunications sector. Equity markets may be rallying right now, but I don't think Greece is going to be the last episode to spook the markets in 2010, and as such, high-yielding defensives are set to find - continue to find - increasing favour in the year ahead.

Earnings for the sector will be underpinned by the increased popularity of smart phones, and with Apples iPad to be launched imminently, it's just another example of another vehicle through which data consumption is going to be increased.

Thanks for watching. Make sure you tune in again next week.