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Vodafone, Verizon: Dial V for very complicated
European vendor dislikes partnerships

By John Blau, IDG News Service June 14, 2004

DÜSSELDORF, GERMANY - It's not as if Vodafone Group PLC and Verizon Wireless Inc. have had a rocky relationship in the U.S. The two companies have actually enjoyed a successful partnership that has generated billions of sales and millions of customers.


The problem is that the European mobile phone giant dislikes partnerships; it prefers instead to gain full control of companies in order to pursue its own branding, pricing and "seamless" service strategy, especially in the enterprise customer space.

Vodafone drove home that message in February when it made an unsuccessful bid for AT&T Wireless Services Inc. The Newbury, England, mobile phone group was prepared to unload its 45 percent stake in Verizon Wireless to acquire a rival and become its own boss in the huge and strategically important U.S. market.

Now, the relationship between Vodafone and Verizon Wireless could be tested again.

Vodafone has until Aug. 9 to decide whether to cash in on its stake in the U.S. mobile phone company. Under a put option, which was exercisable for the first time last year and will continue every year in an agreed two-month window through 2007, Vodafone can require Verizon Communications Inc. to pay as much as $20 billion for its 55 percent stake in the venture, in two equal payments.

Vodafone has been keeping its cards close to its chest ever since the put option went into effect, June 10.

"We didn't comment on the put option last year and we aren't commenting on it this year," a Vodafone spokesman said. "What we are saying, however, is that we are satisfied with our partnership in the U.S."

That may be true, but even Vodafone Chief Executive Officer (CEO) Arun Sarin admits he's open to change - if the conditions are right. "Nothing is imminent, but everything is possible," he said at a media conference last month when asked about the partnership.

If Vodafone should decide to unload its stake, he wouldn't have to look hard for a buyer. Verizon Communications has made no secret of its desire to gain gull control of its wireless unit, which is the most profitable part of the group.

"The ball is in Vodafone's court but we have made it very clear to the company that if they want to sell part or all of their stake in Verizon Wireless, we will buy whatever they have to sell," said Verizon Communications spokesman Bob Varettoni.

To sell or not to sell is the multibillion dollar question that Sarin may choose to answer in the current put option window or postpone until next year -- or dodge altogether. It's tough decision, arguably the toughest the newly appointed CEO may face while in the hot seat at Vodafone.

Should Vodafone cash in its stake for $20 billion, what can it buy in the U.S.?

T-Mobile USA Inc. has comparable GSM (Global System for Mobile Communications) technology and is small enough to afford but its owner, Deutsche Telekom AG, is keen to expand its own position in North America, according to Richard Dineen, wireless research director at London-based consultancy Ovum Ltd. The other operators, Cingular Wireless LLC, Nextel Communications Inc. and Sprint Corp., are either too expensive or have incompatible CDMA (Code Division Multiple Access) technology or both, he said.

Dineen sees little incentive for Verizon Communications to sell off its wireless subsidiary. "It makes no sense for Verizon to get rid of the jewel in its crown," he said. "A fixed operator like Verizon with a mobile subsidiary can hedge against mobile phone substitution, which, together with voice over IP (Internet Protocol), is eroding its core voice business."

Even if the marriage between Verizon Wireless and Vodafone isn't the easiest, it's convenient and, no less important, it's highly profitable, according to Dineen. "The best thing for Vodafone is to maintain the relationship," he said. "It really doesn't have many options at the moment but then in this industry, you never really know."

http://www.infoworld.com/article/04/06/14/HNVodafoneVerizon_1.html