Telecom Lead Asia: Plans of AT&T and Verizon Communications to buy the British mobile-phone company Vodafone will have severe impacts on the global telecom industry.
The main benefits of the possible deal — that will give Vodafone an enterprise value of about $245 billion — will be to Europe, Asia and African telecom markets where Vodafone has a major presence. This also means that competitors of Vodafone will be forced to draw more aggressive network and mobile customer acquisition strategies.
First, Vodafone will be forced to dilute its image as a mobile operator who is building revenues on the strength of its recent forays into key emerging telecom markets. This is because AT&T and Verizon are premium service providers at present.
Vodafone will have more funds to invest in several European nations for customer acquisitions. Currently, Vodafone relies on emerging markets including India — revenue grew at 9 percent; Vodacom 1.9 percent and Turkey 18.4 percent in third quarter of 2012-13.
Second, both Verizon and AT&T are strong enterprise communication providers. Vodafone Group, despite the recent acquisition of Cable & Wireless Worldwide, is yet to build its presence among enterprises globally. It will be a strong value addition for customers of Vodafone, a major M2M player, across the world.
Third, LTE / 4G and mobile data is a thrust area for both AT&T and Verizon. Vodafone is in the process of learning 4G trends and making revenue. It will be a big learning for Vodafone’s 4G investments. This means that its competition in emerging and European markets will have tougher tasks to face.
Vodafone launched LTE / 4G in Germany, Portugal, Italy, SA, Romania, and Greece. It is in the process of preparing for LTE in the U.K., Netherlands, Australia, New Zealand and Ireland.
In fact, Vodafone is very cautious about 4G investments. For example, Vodafone did not invest in 4G in India in 2010. Vodafone’s Q3 2012-13 data revenues grew 12.8 percent. But data has more potential for growth.
Fourth, a combination of AT&T, Verizon and Vodafone will threaten present market dynamics. The combined entity will have more financial power for buy outs. AT&T is considering a stake buy in India’s Reliance Jio Infocomm, a 4G venture owned by billionaire Mukesh Ambani. If AT&T and Verizon are going to buy Vodafone, AT&T’s deal with Reliance Jio Infocomm will find more synergies in India.
There are telecom assets available in Europe. Tele2 recently sold its Russian telecom business. If Vodafone can not buy these assets, support from Verizon and AT&T will be a value addition. But Vodafone is currently worried about its business in Europe. Increased competition and tougher economic conditions are the main reasons.
Fifth, AT&T and Verizon will become more closer in America. It will be a challenging news for T-Mobile, Sprint, and others.
Sixth, Vodafone will be able to speed up its cost cutting initiatives — targeting £300 million in 2013-14 — as it can get technological and resource support from the new buyers. It can further reduce the net debt from £23.3 billion.
Seventh, it will become a major task for telecom and IT equipment vendors to offer telecom equipments to these three telecom giants. There can be a centralized sourcing where all negotiations happen. The first priority could be to optimize Capex.
Meanwhile, Verizon Communications has denied a report that it’s looking to partner with AT&T to buy Vodafone Group, the British cellphone company that owns 45 percent of Verizon’s wireless business.
In a statement on Tuesday, Verizon said it’s still interested in buying out Vodafone’s stake in Verizon Wireless. “It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others.”
AT&T did not share any comments.
AT&T has not pursued a big deal since the failure of its $39 billion bid for T-Mobile USA two years ago, and still has plenty of financial firepower, with nearly $5 billion in cash and short-term investments on its balance sheet.
Verizon itself has about $3.6 billion. And both American companies have healthy balance sheets that could support the additional debt needed to finance a major deal.
Despite the collapse of the T-Mobile deal, AT&T has still sought to grow. With American antitrust regulators unlikely to let it buy anything of scale at home, AT&T has turned its eyes abroad for possible opportunities.
Baburajan K
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