As Vodafone closes its Verizon deal, the rumour mill goes into overdrive

If I had to use three words to describe the week in telecoms so far, they would be "Vodafone, Vodafone, and, er, Vodafone". To say the UK-based operator has been in the news a lot in the past few days would be something of an understatement--and it's only Wednesday.

First came the rumour that AT&T was on the brink of making a £60 billion (€72 billion or $98.89 billion) bid for the Vodafone Group while AT&T CEO Randall Stephenson reportedly discussed M&A matters with EU regulators during the World Economic Forum in Davos.

Reports that Stephenson had specifically spoken to the European Union's digital chief Neelie Kroes conjured up images of the CEO door stepping Kroes in traditional journalistic style, but of course the two may well have prearranged a meeting over a glass of Glühwein.

A merger between Vodafone and AT&T was, nevertheless, categorically rejected by AT&T in a statement first thing on Monday. However, this outright rejection has failed to halt the ongoing speculation that the two operators will end up together. Indeed, AT&T would be in a position to return to the fray in another six months, by which time Stephenson may be hoping to see a relaxing of regulatory conditions in Europe that continue to create obstacles for M&A.

Indeed, reports this week also said the European Commission has raised "concerns" about Hutchison Whampoa's plan to buy Telefónica Ireland and merge it with 3 Ireland, while it's already clear that it will not be smooth sailing for Telefónica's planned acquisition of Germany's E-Plus from KPN to form Germany's largest mobile operator.

As well as tough EU regulations on M&A, another unappealing aspect for AT&T is Vodafone's convergence strategy.

A crucial development in that strategy is that Vodafone and Verizon shareholders on Tuesday approved the $130 billion deal to sell Vodafone's 45 per cent stake in Verizon Wireless to the US parent. In one fell swoop, Vodafone has removed its US interests and injected a huge amount of cash into its bottom line and shareholders' bank accounts. The operator has thus set the stage for more speculation about who is likely to snap up a smaller Vodafone minus its US assets on one hand, and exactly how the company will spend its cash on the other.

Already this week it has been speculated that Vodafone is talking to Ono in Spain as part of its strategy to build up fixed assets in Europe. That could put the operator on a collision course with Liberty Global, which has just agreed to buy Dutch cable operator Ziggo and is known to be interested in other European cable assets. A wave of new cable deals could be on the cards--with Vodafone and Liberty Global slugging it out in the M&A ring.

That would not be an attractive prospect for AT&T, which has not tended to favour a converged approach.

As things stand nothing can be ruled out, but a widely held view is that AT&T is biding its time to see what happens in the European telecoms market in the next six months.--Anne

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