The British telecom company Vodafone has decided to sell out its stake in Verizon Communications, America’s largest wireless service provider. This INR 8.2 trillion deal will help Verizon to gain back full ownership over its turnover. This will in turn help Verizon expand its network and add to its current 98.9 million subscribers.
Jeff Kagan, wireless analyst, says that the world is rapidly moving toward wireless technology, and there are still enormous opportunities for growth. So what does this move by Vodafone mean for the telecommunications industry
Mobile Service Rates
Telecommunication companies require large networks in order to provide efficient services to their customers. During mergers, it is important for telecom managers to interact with different vendors in order to break down shared expenses and revenues. With Vodafone moving out of the partnership with Verizon, the American company now needs to consolidate all expenses and figure out if it needs to make any changes in mobile service rates. As of now the rates remain the same.
The Verizon-Vodafone deal comes at a critical time for the American telecommunications industry. Customers may not see any drastic changes in Verizon’s services. However, the financial implications for this telecom company may be significant.
In Q2 of 2013, the growth rate of America’s wireless market was 2.2%. Craig Moffett, an analyst for Moffett Research, says that this is the first time ever that this figure has fallen to less that 2.5%. This illustrates that most people already have cell phones, and are therefore not subscribing for newer connections.
Verizon is therefore moving onto devices like tablets, and security systems for homes and vehicles. Verizon hopes that such expansions will steadily increase its earnings and dividend over the next few years.
Lowell C. McAdam, Verizon’s chief executive, says that wireless connectivity is important for the emergence of new data-hungry users across sectors like healthcare and education. He feels that the wireless market is not losing steam at all.
Impact On Europe
Europe’s telecom industry has not seen a lot of positive growth lately. There are over a hundred mobile and fixed-line operators across the European Union, which are owned by a mix of more than forty different corporations. At present, due to the large number of players in the field, pricing is low and therefore eating into the profit.
However, Vodafone has said that it will spend INR 628298567 billion towards high speed cell phone and broadband services over the next three years across markets in Europe and developing countries. America’s second largest telecom company, AT&T, is also keen on expanding its networks across Europe.
Chief Executive of AT&T, Randall Stephenson says that the company plans to acquire companies that will allow it to expand its network across the new European continent.
Vodafone’s chief executive, Vittorio Colao, has said that the Verizon-Vodafone deal offers good value for shareholders. 71% of the proceedings from Vodafone’s sale of its 45 percent stake in Verizon Wireless will be given back to Vodafone’s shareholders. This amounts to INR 5.27770797 trillion, out of which INR 1.50163358 trillion will be in cash, and INR 3.78235738 trillion will be in Verizon stock. Though this seems like a beneficial deal for the shareholders, some fund managers may not be legally allowed to hold American stocks in their funds. They would then be forced to sell, and others may simply not have great hopes for Verizon’s stocks.
More Deals And Mergers
This Verizon-Vodafone deal will increase the consolidation activity in the global telecom sector in 2013 to INR 19.0374466 trillion, the highest ever since 2000. This could potentially lead to more deal-making in the future.
This sale has bolstered Vodafone’s capital with a huge chuck of approximately INR 1.8848957 trillion, thus allowing it to buy more mobile operators in different countries. Furthermore, Vodafone may also plan on buying fixed-line operators, like Liberty Global PLC, which owns broadband networks in more than a dozen countries.
The Verizon-Vodafone deal will definitely impact the telecommunications industry in many different ways. It is yet to be seen if it will have any direct repercussions on the present user base. Both companies hope to expand their services after this deal is closed. Hopefully, this will mean good news for potential customers, as well as for the telecommunications industry as a whole. Even as Smartphone sales beat Feature phones, Carrier relationship such as this will have significant influence over the industry.