Vodafone, DT face dilemmas in U.S. market




Vodafone, DT face dilemmas in U.S. market
Vodafone and Deutsche Telekom are once again facing some shareholder pressure to sell their U.S. wireless businesses--demands that date back as far as 2002. Both say they are staying put, as they view their U.S. businesses as a key component to their long-term growth strategy.

Indeed, U.S. mobile market growth continues to chug along, with Verizon Wireless--the joint venture between Verizon and Vodafone--consistently leading the way with subscriber additions and other key financial benchmarks and DT's T-Mobile USA posting some impressive financial metrics, especially in the first quarter. This leaves both Vodafone and DT, however, at a crossroads. Do they cash out now before the U.S. market hits a saturation point and growth slows or is there still a lot of room for significant growth? The problem is that unless buyers are willing to pay a significant premium today, Vodafone and DT won't be interested in cashing out.

Some analysts estimate that Vodafone's stake in Verizon Wireless is now worth around $60 billion, significantly higher than last year's number of $48 billion, a price which Verizon reportedly scoffed at. Then again, Verizon is in a much better place than it was a year ago. The stock is up about 40 percent from last year, it added nearly $3 billion in cash flow last year (to $29.5 billion), according to Capital IQ and has been selling off assets such as its directories business. 

But we could very well see Verizon slowly taking more ownership away from Vodafone, which could placate Vodafone shareholders and give Verizon a way to begin digesting the wireless business without taking on such a massive debt load all at once. Last week Verizon filed with the Securities and Exchange Commission to sell $8 billion worth of a $10 billion shelf offering from 2003. Speculation is that the move could be in anticipation of buying back a $10-billion stake in Verizon Wireless from Vodafone. Vodafone holds a $10 billion option on Verizon Wireless that is due to expire in the 30 days before or after July 10, 2007.

The days when companies pursued acquisitions at all costs to grow their wireless operations might be gone. -Lynnette

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