Verizon and Vodafone stir the pot

Vodafone and Verizon are again in the news. I’ve posted a recent story to our message boards, and written about them previously in the context of the upcoming American 700 MHz auctions. (Full disclosure: I used to work for AirTouch, which was acquired by Vodafone, and for Arun Sarin, now CEO of Vodafone.) The recent news is about their difficulties getting along together and about the possibility that the dividend Verizon pays to Vodafone, as a major stockholder, might not be paid again until 2010 or later.
In my earlier writings I’ve predicted that Vodafone would be a key bidder in those 700 MHz spectrum auctions. The current news only strengthens my belief in that outcome. Vodafone recently declined to sell a small bit of its Verizon holding, thought to be worth about $10 billion, if that can be called small. The reason they passed on the chance was the worry that reducing their position in the partnership would leave them even less influence over decisions taken at Verizon than they have now. However, with the news that the dividend might not be paid for the near future Vodafone has less of an incentive to stay on board. And remember, Verizon Wireless has repeatedly expressed a desire to buy out the Vodafone stake. Therefore, Verizon can be expected to continue taking steps to motivate Vodafone towards that goal.
These are factors pushing Vodafone away from the Verizon partnership. On the pull side are also a couple enticing factors. First, there is the prospect of all the cash from their Verizon stake, possibly $55 billion or more. With funds like these they could pay down debt, reward shareholders, buy back stock and invest in all kinds of new technologies and network upgrades.
Second, there are those interesting spectrum auctions. I have imagined that Vodafone would want a part of that to build a new nationwide, state-of-the-art GSM network to which their existing global subscriber base could seamlessly roam.
Together these combine to give Vodafone powerful incentives to arrange their exit from the partnership. I suspect they will do that as surreptitiously as possible for the same reason they declined to sell the $10 billion stake: to avoid diluting their current influence. Vodafone could conceivably discuss selling their stake with a private equity group. This also would strengthen their hand in any negotiations with Verizon.
Whether or not this comes to pass misses the point. The upcoming spectrum auctions are a huge, once in a generation opportunity. Everyone who is anyone will be at the table. This is high theatre at its finest.

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