BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE
BUSINESS WEEK E.BIZ -- NET WORTH

ONLINE EXTRA: What a Delayed IPO Means for Verizon Wireless
With its offering on hold, the mobile-phone giant will have to find another way to get the cash to buy radio spectrum

It's not just fledgling Internet companies that have seen their dreams dashed by the rough market for initial public offerings. The Oct. 23 issue of Business Week's e.biz, which hit the streets on Oct. 13, predicted that Verizon Wireless, the largest provider of mobile-phone service in the country, with 26.3 million subscribers, might have to delay its IPO because of the steep drop in telecom stock prices (see BW e.biz, 10/23/00, "Verizon May Have to Wait"). At that time, we estimated that the market value of the company had tumbled to about $120 billion, from $170 billion back in April.

Apparently, Verizon Wireless CEO Dennis Strigl was troubled by the same numbers. On Oct. 16, the wireless giant and its two largest shareholders, Verizon Communications and Vodafone Group, announced that they would defer the IPO, which was expected to raise as much as $15 billion, because of the "volatility of the capital markets." The company still hopes to have the stock offering as early as December, although it's more likely to take place next year. "While we are disappointed that we couldn't move forward, we clearly feel that this was the proper action to take for Verizon Wireless and for shareholders," Fred Salerno, Verizon Communications' chief financial officer, told investors during the company's recent earnings conference call.

Verizon Wireless is in good company. A record 29 tech or telecom companies withdrew or postponed their IPOs in October, more than during any other month of the year. Some of the other companies deterred by the chilly stock market last month were Nextel International, which also provides mobile-phone service, and idealab!, an incubator for Internet companies. All told, tech and telecom companies raised a modest $2.1 billion through IPOs in October, down 25% from September and down 50% from the monthly average for 1999 and 2000.

TURNING TO SHAREHOLDERS. Not being able to raise money through a stock offering creates significant challenges for Verizon Wireless. The federal government is preparing to auction off radio spectrum to mobile-phone companies over the next few months. The wireless players plan to use the spectrum to offer a host of new services that will let people tap the Internet for everything from stock quotes and news clips to restaurant recommendations and shopping coupons. Analysts estimate that wireless companies that want a broad slice of the new spectrum may have to pay as much as $15 billion -- and Verizon Wireless has said it plans to be a major player in offering the new Net-related services.

Without an IPO, Verizon Wireless will probably have to turn to its two biggest shareholders to get the money it needs for the auctions. Verizon Communications says that it and Vodafone are willing to provide the cash Verizon Wireless needs. "The parents will provide bridge financing to make sure the company is successful in the upcoming auctions," says Salerno.

That seems like a short-term solution that will make everyone happy. The first auction of radio spectrum will take place before the end of the year, and Verizon Wireless' parents should be able to provide enough cash to help the company buy the licenses it needs. But the next auction, which is expected to take place next year, may prove more expensive. If Verizon Wireless still can't go public early next year, its parents may be less willing to pony up more money. That could make it tough for Verizon Wireless to acquire all the radio licenses it wants in order to bring the Net to your mobile phone.

By Peter Elstrom in New York

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