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Verizon Wireless buyout drive is all about the dollar signs
- — 29 August, 2013 22:33
The price Verizon might pay to buy out its mobile subsidiary, reportedly US$100 billion or more, is the most important thing that mobile users need to know about the potential deal.
Vodafone Group, which owns 45 percent of Verizon Wireless, confirmed on Thursday that it is in talks with Verizon Communications to sell its minority stake to the U.S. parent company. Vodafone cautioned that there's no guarantee they'll be able to make a deal, but the companies have talked about it before and may be more motivated than ever. Verizon declined to comment.
If Verizon does take the leap, it's likely to be the biggest telecommunications deal in U.S. history. But consumers shouldn't look for big changes in mobile phones or services from Verizon after its wireless partner is sent packing, industry analysts said. If anything, they might just take it as one more sign that they're well-loved.
"It just shows you how attractive this market is," said analyst Roger Entner of Recon Analytics. The Verizon Wireless deal would come on top of several other transactions in the billions just over the past year: Japan's SoftBank bought control of Sprint for $21.6 billion, T-Mobile paid $1.5 billion plus stock for MetroPCS, and AT&T agreed to buy Leap Wireless at a total cost of nearly $1.2 billion.
"Everybody, from the big to the small, is betting on this market," Entner said.
That's because U.S. consumers are buying into mobile technology and services in a big way and looking to combine the wireless experience with wireline TV and broadband, he said.
"Americans are seeing the value of it," Entner said. "We are leading the wireless broadband, and smartphone, and integrated communications world."
Verizon just wants to put more money behind a good investment, Entner said. The deal might be coming together now partly because interest rates are expected to rise, increasing Verizon's potential cost of borrowing to finance the buyout.
Taking full control of Verizon Wireless would also simplify the company's management, eliminating the separate board of directors overseeing the mobile subsidiary and some redundant administrative functions. Bringing its wired and wireless businesses fully into one company might make it a bit easier for Verizon to offer combined services, he added.
"For the subscribers, I don't think much will change," Entner said. A wholly owned Verizon mobile business wouldn't be significantly more competitive, either. Nor would Verizon's debt load, reportedly $50 million or more, weaken the company. In time, the buyout would pay for itself, Entner said.
"At roughly $2,000 per subscriber, it's not even outlandishly expensive," he said. Cingular paid more per subscriber to acquire AT&T Wireless in 2004, according to Entner.
"For U.S. consumers, there won't be any noticeable difference," said Chetan Sharma, founder and president of Chetan Sharma Consulting.
Where a Verizon-Vodafone deal could have repercussions is in Europe, because Vodafone might use the proceeds to acquire weaker mobile operators there, Sharma said.
For Vodafone, a U.K.-based company that's involved in mobile businesses on six continents, Verizon's interest in buying now may be a lifeline.
"Vodafone's core markets are in trouble as net revenue is declining," Sharma wrote in an e-mail interview. "It needs cash to shore up the assets in Western Europe."
The company is also starting to focus on combined wired and wireless plays, such as its planned $10 billion acquisition of Kabel Deutschland, Germany's biggest cable operator. The company aims to combine fixed broadband, mobile and TV on one bill, Enter said.
"What is finally motivating Vodafone is the implementation of their European integrated carrier strategy," he said.