Recently, there has been talk that a merger between Vodafone and Verizon Communications could be the most logical option for both telecom operators. A recent report by analysts from Goldman Sachs Group stated that if Verizon Communications were to get rid of their fixed-line unit, it would allow for its wireless and enterprise units to merge with that of Vodafone’s. The report saw this as the most “attractive option” for Vodafone.
According to the report, Verizon is set to contribute 40% of Vodafone’s Net Operating Profit After Tax (NOPAT) in 2013. Vodafone (London) owns 45% of Verizon Wireless (New York) and is the world’s largest mobile operator in terms of revenue.
According to the analysts at Goldman Sachs, Verizon’s decision in December to purchase cable spectrum assets could set the company up to spin off its remaining wireline assets. By doing this, Verizon could merge its wireless and enterprise units with Vodafone’s, where analysts see faster growth.
Analysts don’t predict that these structural changes will happen quickly for Vodafone, but instead the telecom provider will concentrate on expanding its operation agreements abroad.
On Monday, Vodafone outlined plans to expand into fast-growing markets in Asia and South America through new partnerships to support international customers. The company mentioned nothing of Verizon Wireless or the U.S. in its plans. When asked about the potential merger Vodafone said it was just speculation “on which we do not comment.”
Vodafone, who has recently completed a scaling back of its portfolio after years of rapid expansion, will seek to secure new agreements with local operators to spread its footprint while avoiding expensive buyouts or heavy investments.
Partnership deals with local operators are all different and enable the group to provide connectivity to international customers. Some local operators also take on the Vodafone brand while others offer branded products.
Analysts said the move made a lot of sense and the partnerships would reassure investors that the group was maintaining its more measured approach to expansion after years of aggressive acquisitions in territories such as India.
"Investors will take comfort that rather than splurging cash ... they're seeking to get all the benefits of the brand, all the benefits of roaming, all the benefits of being big without blowing a lot on control premiums," says Liberum analyst Mark James. "It's a logical extension of the way they've been running the business, the M&A strategy has been far more sensible of late than it has been in the past."
Vodafone announced a new partnership in French Polynesia and said it expected to agree new deals in further territories in Asia and South America through 2012 and beyond.
Dominant operators in those regions include Telefonica, Carlos Slim's America Movil, and Singapore's SingTel.
"These strategic relationships are good for partners and good for customers," says Vodafone Partner Markets Chief Executive Ravinder Takkar.
"They offer the best of Vodafone's scale and global expertise combined with our partners' market knowledge and experience. Our Partner Markets division has grown rapidly in recent years, and we look forward to further expansion into emerging markets."
The announcement follows a program by Vodafone to withdraw from markets which it did not control, such as France, China and Poland, which boosted the appeal of the company to investors as it returned much of the cash to shareholders.
It now has a partnership deal in France following a sale of its 44% holding in French operator SFR to Vivendi last year for $9.8 billion. The two companies will also jointly source and deploy a full range of products and services targeted at the corporate markets.