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Why Would Vodafone Sell Verizon Wireless?

Posted by: Olga Kharif on March 14, 2006

Lately, there have been lots of media reports claiming that Verizon has approached joint venture partner Vodafone about buying out Vodafone’s stake in Verizon Wireless. What I’d like to know is, Why in the world would Vodafone want to sell the stake?

Selling that stake makes about as much sense for Vodafone as for Deutsche Telekom to sell its stake in T-Mobile USA: none at all. Unless Verizon is willing to pay a fat, very fat premium, that is.

Consider: In the fourth quarter of 2005, Verizon Wireless's revenues were up 18.3% year over year. Vodafone's total sales, meanwhile, only grew by 7%. And Vodafone expects potentially less growth this year due to increased competition in Europe.

But the U.S. market, meanwhile, is becoming less competitive. Massive consolidations (AT&T-BellSouth, Cingular-AT&T Wireless) are making this one of the best developed markets to be in. So why in the world would Vodafone want to sell out? Why would it want to exit one of its fastest-growing businesses?

This makes about as much sense as for Deutsche Telekom to sell its T-Mobile USA division, one of its fastest-growing businesses.

Unless carriers like Verizon are willing to cough up a substantial premium, Deutsche Telekom and Vodafone won't be interested in exiting the U.S. market.

Sure, shareholders say Vodafone needs to focus more on its European operations. But as Vodafone faces growth pains, it will want to expand the number of fast-growing businesses it's in instead of reducing them.

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Reader Comments

Senaka Balasuriya

March 14, 2006 09:59 PM

There are several reasons why Vodaphone would sell their stake in Verizon Wireless to Verizon

1. No direct synergy with Vodaphone's (mainly European) properties. Verizon Wireless uses CDMA which is different from the GSM/TDM/W-CDMA that vodaphone uses. Thus, no synergies in either the network or handset - Even if there was a significant transatlantic market (e.g. business users travelling between europe and USA), it wouldn't be as cost competitive as Cingular/ATTs or T-mobiles.

2. Fixed-Mobile convergence will become a factor in competiting effectively and Verizon is better positioned to execute that by itself than vodaphone is. Essentially value will migrate towards Verizon's camp.

3. Ditto with bundling opportunities (e.g. triple play, quadruple play, whatever).

On the other hand, you make good points about growth. However, this level of growth is unlikely to last and Vodaphone may see better investment opportunities elsewhere (short term and long term)


March 15, 2006 01:14 AM

Rather than spend $45Billion on an asset that it alry control, why not buy a major cable company like COMCAST? That puts Verizon into the middle of T's business, gives it access to programming, presents bundling and wireless opportunities and gives it a few years to complete the current fiber build out. When that is complete, Comcast would be fully deprecitated and ready for its own fiber.


August 8, 2007 11:04 AM

Yes, there is paper value in the equity stake in Verizon Wireless, but the stake earns Vodafone ZERO cash. There are also a variety of legal hurdles that Vodafone will face should it decide to sell its stake to a buyer other than Verizon.

Sure, Vodafone can hold its stake until the cows come home, but what good is paper money if you can't do anything with it?

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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