In a previous article, I wrote that a Verizon (VZ) buyout of Vodafone's (VOD) 45% stake in Verizon Wireless was unlikely, despite many news reports to the contrary. I continue to have no doubt about Verizon's desire to execute a buyout, but argued that selling simply didn't make sense in light of the status of the rest of Vodafone's global operations. I believe my opinion has been vindicated, most recently by statements in Vodafone's earnings report, where CEO Colao said,
We are in a very comfortable situation, we have an ownership of an asset that delivers a pretty important amount of value to our shareholders, which also has liquidity, and is in a country which has a fantastic market structure, with a company that is the leader.
In other words, Vodafone management recognizes the value of the U.S. market, if not their partner in it. What if there was a way Vodafone could retain a stronghold in the states, while shedding their now uncomfortable partner? While Vodafone has divested many minority stakes in recent years, its bid to enter Myanmar with China Mobile shows that it is still willing to partner for the right opportunities. The company has plenty of experience building mobile networks, but they would need spectrum, and experience in dealing with FCC wouldn't hurt either. There is a company with spectrum, that is looking for an experienced mobile phone network operator with whom to partner. That company is Dish Networks (DISH).
Dish has offered $25.5 billion to buy Sprint (S), and $3.30 per share (almost $5 billion) for Clearwire, which is half owned by Sprint. The idea is to be able to provide a complete suite of video, internet and phone solutions, but these bids are unlikely to succeed, in part because of the high debt levels Dish is racking in the process. Estimates for sale of the Verizon Wireless stake dwarf these figures, though, at well over $100 billion. Furthermore, Vodafone has also begun migrating towards offering such services in a combined package. A Dish/Vodafone union might even dovetail nicely with aspirations already ascribed to Dish. With cooperation between Vodafone and Deutsche Telekom (OTCQX:DTEGY) already underway in Germany, perhaps Dish's plans for the latter's state-side arm, T-mobile, could be rekindled.
For all of the potential purchases and partnerships that have been proposed for Dish, I've yet to see Vodafone even considered; yet, it seems to me, that these two companies' positions are more complementary, and their goals more in line than anything else that has been posited. That said, here are further pros and cons to such an arrangement:
- Regulation: The deal should not be much of a problem from a regulatory standpoint, given that Verizon has received approval to purchase spectrum and co-market with cable companies.
- Partnership Opportunities: The U.S. market is ripe for disruption. The progressive shift of consumers towards pre-paid plans and the popularity of products like Hopper and Google Voice and are just a few data points amongst many supporting this stance. Dish was already rumored to have talked to Google and Vodafone has innovated in its own way with ventures like m-Pesa. The right add-on partnerships would be key.
- Satellites: Dish's experience could be very valuable to Vodafone. Much programming (especially sports) is best suited to broadcast, rather than wireline transmission. Vodafone potentially picks up the means for realizing their global video ambitions while reducing their global build-out costs.
- Taxes: This has always been a stumbling block, and now more than ever since Vodafone has been under pressure in the U.K. for tax avoidance.
- Chemistry & Control: Dish's Ergen is something of a maverick and may want to call the operational shots. His taste for this might be getting dulled by all the wrangling... then again, it might not. Vodafone has reportedly not wanted to cede control in prior negotiations.
- Risk: this would nearly be a bet-the-farm proposition for VOD. Competition with Verizon would be fierce and even if they start with an incumbent like Sprint or T-Mobile, build-out costs would be huge. Vodafone is no stranger to building networks, and it's a battle they can win, especially with the right partners, as mentioned above. Still, I'm not at all sure that Vodafone management has the appetite for this level of financial risk.
To conclude, I should state that I have no evidence at all that plans of this sort are underway. I'm simply describing a vision that seems to make more sense than many of the negotiations that are already underway. Given the environment in the U.S. I continue to believe that the status quo is the most likely "outcome" for the near future for Verizon Wireless. However, if we really wanted to see domestic competition and progress, I think one could hardly do better than to combine the problems facing Dish Networks and Vodafone into a single solution.