Daily Dose of iQ: In Talks With Vodafone, Verizon Banks on Wireless Future

Aug 30, 2013 — Tara Bartlett

UPDATE (Sept. 2): Since this article was published Aug. 30, Verizon Communications and Vodafone reached an agreement in which Verizon will pay Vodafone $130 billion fo rits 45% stake in Verizon Wireless.

As Phil Goldstein of FierceWireless wrote (Sept. 2), the deal caps "a years-long saga that will give Verizon full control of its wireless operations and deliver a massive payout to Vodafone and its shareholders."

Goldstein broked the deal down as follows: "Verizon will pay for the deal via $60.2 billion in stock and $58.9 billion in cash, with the remaining $10 billion made up of other considerations, including Verizon's 23% stake in Vodafone Italia (worth $3.5 billion) and $5 billion in notes payable to Vodafone. Vodafone sale the deal will trigger a U.S. tax bill of $5 billion."


A New York Times article reported today that Vodafone, the British telecommunications giant, has confirmed that it is in talks to sell to Verizon Communications its 45 percent stake in Verizon Wireless, a deal that analysts say could be worth at least $125 billion.

For Verizon, this has been a long-sought deal, one that would rank among the biggest purchases in history. With complete ownership of its wireless business, the company would be able to shift from receiving dividends to being able to fully incorporate all of its profit. And it will have full control over what it does with that profit, especially as advertisers, content distributors and wireless carriers increasingly use smartphones, mobile data and information services.

The impact from a consumer perspective will be negligible.Jan Dawson, a telecom analyst for Ovum

With 10 billion connections worldwide, the number of cellular subscriptions is on track to outgrow the human population. That is because in addition to cellphones, many other devices, like tablets, video game devices and even home security systems, are now all relying on cell towers to deliver information, entertainment and media to consumers.

Verizon is still the No. 1 cellphone carrier in the United States by market share, but it faces formidable competition from AT&T, the No. 2 carrier. The smaller carriers,Sprint and T-Mobile USA, offer lower-cost phone and data plans to try to compete, but to little avail — AT&T and Verizon still account for two-thirds of overall subscribers.

In theory, having complete ownership of the wireless venture would allow Verizon to integrate its businesses more tightly, which might lead to better deals on bundles with wireline and wireless products.

At least in the short term, Verizon customers would be unlikely to see much difference in their service. “The impact from a consumer perspective will be negligible,” said Jan Dawson, a telecom analyst for Ovum.

But it is clear why Verizon would want complete ownership of its wireless division. The lucrative wireless industry, already worth $1.6 trillion, is expected to become a multitrillion-dollar market in the next decade, said Chetan Sharma, an independent telecom analyst who does consulting for carriers.

Verizon is still the No. 1 cellphone carrier in the United States by market share.

With 10 billion connections worldwide, the number of cellular subscriptions is on track to outgrow the human population. That is because in addition to cellphones, many other devices, like tablets, video game devices and even home security systems, are now all relying on cell towers to deliver information, entertainment and media to consumers.

Verizon is still the No. 1 cellphone carrier in the United States by market share, but it faces formidable competition from AT&T, the No. 2 carrier. The smaller carriers,Sprint and T-Mobile USA, offer lower-cost phone and data plans to try to compete, but to little avail — AT&T and Verizon still account for two-thirds of overall subscribers.

Verizon’s core strategy has been to invest more in network infrastructure to attract customers with the best technology. For instance, it is leading the industrywide race in building a faster fourth-generation wireless network, called LTE. Verizon has LTE covering 500 markets; AT&T has LTE in about 370 markets.

The potential deal would be one of the biggest in the last two decades, trailing only Vodafone’s $202.8 billion takeover of the German cellphone operator Mannesmann in 2000 and the $181.6 billion merger of AOL and Time Warner in 2001, according to Thomson Reuters

Topics: Wireless Trends, Mobile Industry

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