McAdam: 'Verizon is not going to Canada'

Verizon Communications (NYSE:VZ) CEO Lowell McAdam said Verizon Wireless will not expand into the Canadian wireless market following Verizon's proposed $130 billion acquisition of Vodafone's 45 percent stake in Verizon Wireless. He said Verizon will now focus on a "One Verizon" strategy of more fully integrating its wireless and wireline assets in areas such as machine-to-machine and cloud computing.

"Verizon is not going to Canada," McAdam said in an interview Monday with Bloomberg. "It has nothing to do with the Vodafone deal, it has to do with our view of what kind of value we could get for shareholders. If we thought it had great value creation we would do it."

McAdam said the speculation that Verizon would enter the Canadian wireless market was "way overblown" and said "the press made much more of our interest in Canada than there was inside our company."

In a conference call with investors Tuesday morning to discuss the Vodafone deal, McAdam echoed those comments. "It was always on the fringe for us," he said, adding that Verizon never seriously considered a move into Canada. "It's off the table at this point," he said.

Incumbents Telus, Bell Mobility and Rogers Communications, which dominate around 90 percent of the market in Canada, have waged an extensive public relations campaign to argue against letting Verizon enter the Canadian wireless market. Reports emerged this summer that Verizon might do so, either via potential deals with fledgling Canadian wireless carriers Wind Mobile and Mobilicity or through participating in Canada's 700 MHz spectrum auction, set to start in January. During Verizon's second-quarter earnings conference call in July, Verizon Communications CFO Fran Shammo said that Verizon is interested in exploring options to enter the Canadian wireless market, but he stressed that it is "really an exploratory exercise for us."

With Verizon out of the picture, the Canadian incumbents will likely continue to dominate the market there. Canada's government last year relaxed restrictions on foreign ownership in small telecom companies with market share of 10 percent or less, in the hopes of increasing competition for the larger carriers. The government also released new rules that will require all spectrum transfer requests to be reviewed. Further, under current rules, Verizon or any other new entrant could potentially bid in the 700 MHz auction for two of four prime blocks of the spectrum up for bidding, while the incumbents can only bid for one block each.

Emerging Telecoms analyst Ronald Gruia wrote in a research note that "a possible Canadian expansion would become too much of a distraction in the aftermath" of Verizon's proposed transaction with Vodafone.

"Obviously, there will be some celebrating done in Toronto and Vancouver, but the incumbents have demonstrated by their behavior (e.g. trying to buy out new entrants such as Mobilicity, creating the 'Fair for Canada' campaign, etc.) that left to their own devices, they will continue to maintain as much of the status quo as possible," he added.  "This really fully justifies Ottawa's current policy to try to stimulate as much as possible a competitive environment, without which Robelus [the Canadian incumbents] would revert back to oligopolistic market conditions."

On the conference call, McAdam said the Vodafone deal will allow Verizon to more seamlessly pursue opportunities to expand mobile penetration through sectors such as M2M, cloud, and security, and that Verizon has wireline assets in places, including acquisitions of Terremark, Hughes Telematics and Cybertrust to make that happen. The deal, he said, is "clearing the road, if you will, for us to aggressively going after these new market opportunities in a 'One Verizon' framework."

"In my view, we have yet to maximize the value that can be achieved by making our assets work together to solve customer needs," McAdam said.

The Verizon chief also pushed back against market and media speculation that Vodafone agreed to the deal with Verizon because it is more pessimistic about future U.S. wireless growth than Verizon. He noted that Vodafone CEO Vittorio Colao has always said that Vodafone's Verizon wireless stake was an investment, which the company has used to pour money back into its core markets--something Vodafone intends to do now. "I have never heard Vittorio say anything, publicly or privately, that he is less than bullish on the U.S. market," McAdam said, adding that such speculation is something of a conspiracy theory.

For more:
- see this webcast
- see this Verizon presentation (PDF)
- see this Bloomberg article
- see this separate Bloomberg article

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