What next for Vodafone after Liberty talks end?

Vodafone Group confirmed this week that discussions with Liberty Global on a possible asset swap have ended, although the news came as little surprise following recent comments from Liberty chairman John Malone that suggested the talks had been unproductive.

The question now is what lies ahead for the mobile giant, which has been pursuing a strategy of launching converged fixed and mobile services in key markets in order to secure new revenue streams as well as attract and -- importantly -- retain customers.

Reactions to the news have been fairly mixed. On the whole, analysts seem to welcome the fact that attempts to merely swap assets have come to nothing, while some believe that a full merger could still be possible and note that talks could be resumed at any time.

Indeed, Paul Marsch, an analyst at Berenberg Bank, told Bloomberg that a full-blown merger, not an asset swap, would be required to create real value.

Analysts from Jefferies International also said they continue to believe that Vodafone acquiring Liberty Global is a "plausible eventual outcome," noting that "this the most credible deal scenario involving Vodafone and Liberty."

In its assessment of the situation, Current Analysis reckons it's a good thing the asset-swap discussions have ended as they caused "distracting industry and investor speculation".

Analysts Natasha Rybak and Gary Barton add that any asset-swap deal "would have been highly complex and time-consuming to execute, as well as subject to rigorous regulatory scrutiny and possibly onerous approval requirements."

Although they both welcome the move away from talks on asset swaps, Current Analysis and Jefferies International have somewhat different views on Vodafone's future as a standalone entity.

Jefferies remains convinced that Vodafone has weak standalone prospects, "with better revenue trends proving capital intensive to deliver, little competitive network advantage in mobile and strategic shortcomings in fixed-mobile convergence and content."

"As reckoning on Project Spring draws near, we continue to see strategic logic in Vodafone strengthening its asset base via a significant acquisition," Jefferies added.

Rybak and Barton, for their part, note that Vodafone and Liberty Global would potentially have been able to bolster their capabilities in select country markets, but say "their current consumer multiplay positioning still presents both with solid, albeit challenging, opportunities for operational growth."

Vodafone has certainly bolstered its position in certain markets, but it does need a solution for the UK, where it will face considerable challenges should Three UK succeed in merging with O2 UK and BT overcome regulatory hurdles in its bid to buy EE.

What's more, the company faces higher UK spectrum fees following a recent Ofcom ruling, while recent reports suggested the highly competitive nature of the UK market means Vodafone UK doesn't make enough to cover its own costs.

Whatever the eventual solution is for Vodafone in Europe, the case for a "transformational" deal in the UK appears to be as compelling as before.--Anne