* Sector up 22 pct since Jan 2014
* European telecoms now valued more than US peers
* M&A, regulation, convergence behind the upswing
* Vodafone, alternative ops warn on "re-monopolisation"
* More consolidation deals expected (Adds details on prices in Austria after mergers)
By Leila Abboud, Harro Ten Wolde and Julia Fioretti
PARIS, Feb 27 (Reuters) - Europe's big telecom firms areback to rude financial health after years of poor results andregulatory pressure, drawing crowds of new investors andprotests from rivals who worry the formerly state-ownedcompanies may rebuild their monopolies.
Germany's Deutsche Telekom and Spain's Telefonica have predicted that revenues will grow this year, whileFrance's Orange and Norway's Telenor havepromised higher future dividends, a major motivation forinvestors in the sector.
The renaissance is a marked shift from the past five years in which the sector's sales fell steadily because of regulationending various types of mobile fees and tough competition fromcable operators such as Liberty Global and low-costplayers like France's Iliad.
Sector executives credit the improvement to new 4Gtechnology that powers speedier mobile broadband, as well as amore relaxed attitude by regulators to mergers and acquisitions,and the fees the former state firms can charge to share theirnetworks.
Deutsche Telekom Chief Executive Tim Hoettges attributed therebirth of the firms often referred to as incumbents to thetrend of selling multi-service packages comprising broadband,television, and fixed and mobile services.
"It is the convergence that makes the incumbents fly," hesaid on Thursday. "We are in a better position to tell thatstory with confidence."
Thus for the first time in eight years these incumbentsgained broadband market share between January and July 2014,according to EU Commission figures, beating alternative playersby emphasizing higher speeds.
All this has translated into a 15 percent rise in theEuropean telecoms index this year, after a 7.5 percentrise last year. (http://link.reuters.com/was65t)
Consequently the once yawning valuation gap between U.S. andEuropean telecoms has reversed, with the European sector nowtrading at 19.3 times forward price to earnings compared with 14times for U.S. peers such as AT&T and Verizon. (http://link.reuters.com/fym63v)
SOFTER REGULATION
After recent years of recession, the new European Commissionunder President Jean-Claude Juncker wants to spur growth in partby encouraging telecoms firms to invest in faster broadbandinfrastructure, which underpins the modern economy.
By way of incentive, Brussels has decided that when telecomscompanies build new high-speed fibre lines they may chargerivals commercial rates to use them, rather than the regulatedrates that were introduced in the 1990s to inject competitioninto the markets.
The regulators are also taking a softer line onconsolidation, prompting a wave of activity: since December2012, antitrust authorities have approved mobile deals inAustria, Ireland and Germany, as well as Vodafone's purchases of cable operators in Germany and Spain.
ECTA, the trade association for alternative operators suchas Iliad and Talk Talk, warns however thatsuch policies have tipped the balance too far to the big firms.
Its claim is given weight by a Citigroup report titled "TheRebirth of the telecom monopoly" last November that showed adecrease in competitiveness in 25 global mobile markets sincelate 2011, a shift from the prior decade when incumbents werelosing clients.
The recent rapid re-making of the British market sums up thebig players' rebirth.
BT Group, the former state-owned entity that wasfocused on fixed telephony and broadband, has agreed to buy thecountry's biggest mobile provider EE. This recreates anintegrated market leader in Britain just as Telefonica dominatesin Spain or Orange in France, competition advocates warn.
BT's rivals, including heavyweight Vodafone - which grew bystealing mobile business from the former monopolies - arecalling for closer monitoring of the new leader and a fullseparation of the Openreach unit that makes its networkavailable to competitors.
"Some operators can use their networks as a fortress,"Vodafone boss Vittorio Colao told an audience of lobbyists andpolicy makers at an event in Brussels on Thursday.
"We cannot afford to have remonopolisation in Europe."
MORE DEALS COMING
It remains to be seen whether the big firms' strongerpositions will result in higher prices for consumers.
In Austria where the market went from four to three mobileplayers in 2013, the cost for average phone and text users roseby 29 percent between September 2013 and December 2014, whilemobile data users saw costs jump 78 per cent, according to theVienna Chamber of Labour.
Senior executives at major telecoms groups say raisingprices across the board remains difficult so instead they mustfocus on high-end customers to sell bigger buckets of mobiledata or faster broadband, both of which bring in more revenue.
Bankers and industry executives predict more mergers andacquisitions in Europe, perhaps eventually across borders.
"Some like Deutsche Telekom, Telenor, Teliasonera willeventually consolidate the markets outside their home country,"said one banker.
But he added that so far the likes of Altice,Hutchison and Iliad founder Xavier Niel were betterplaced to buy assets because they had billionaire foundersbehind them with big ambitions and were unafraid to load up ondebt. The trio has done recent deals in Portugal, Britain andSwitzerland respectively.
Ramon Fernandez, the chief financial officer of Frenchincumbent Orange, said he was glad the tough times were over butadded the company had emerged stronger.
As part of the sector shake-out, Orange had to slim down,cutting 1.6 billion euros in costs and prompting a 57 percentrise in its share price in 2014. That, says Fernandez, means itis now in a far better position to compete.
"When your valuation multiples are closer to yourcompetitors, it gives you more flexibility in expansionopportunities because you can pay for deals in share and cash,"he said.
Bruno Grandsard, an investor at Axa Investment Managers,said there was further upside in the European telecom sectorespecially because of the high dividend yields on offer in anenvironment of low interest rates.
"The continued decline in profitability is ending, you canstart dreaming about future growth, and the M&A story is notcomplete," he said. (Additional reporting by Sophie Sassard; Editing by SophieWalker)
Vodafone (VOD)
