Verizon doubles down on U.S. as AT&T seeks a hedge in Europe

Verizon Communications Inc. (VZ)’s plan to buy out its wireless partner for $130 billion is a bet that the U.S. mobile-phone market still has room for expansion even as competition intensifies and smartphone demand slows.

While owning all of Verizon Wireless — the 14-year-old venture with Vodafone Group Plc (VOD) — would give Verizon a full share of earnings, the acquisition won’t result in reduced costs or bring new products or services. That means Chief Executive Officer Lowell McAdam will have to persuade investors and bondholders that the profit growth he’s getting will more than justify the heavy price tag, Bloomberg reports.

Verizon’s gamble contrasts with AT&T Inc. (T), which is hunting overseas for acquisitions that would offer better returns than the U.S. McAdam has used $5 billion in deals over his two-year tenure as CEO to invest in the American wireless business just as the industry’s revenue growth stalls. The Vodafone deal would lay the groundwork for what McAdam is betting will be a demand boom for a broad range of telecommunications services.

“McAdam’s strategy is to move away from being a traditional phone company,” said Sam Greenholtz, a former Verizon manager now with SGTelecom Consultants in Westminster, Maryland. “He wants to make Verizon a mobile and fiber company, to provide the means of delivery for cloud services and broadcasts.”

European Exit

Verizon has reached an agreement to acquire Vodafone’s 45 percent stake in their U.S. wireless venture for about $130 billion, according to a person with knowledge of the discussions. A deal could be announced as soon as today, people familiar with the matter have said. Vodafone, having seen how slowing growth and stiffer competition can squeeze profit margins in its European markets, is poised to take Verizon’s money and get out of the U.S.

Vodafone, based in Newbury, England, confirmed in a statement yesterday that it’s in advanced talks to sell the stake to New York-based Verizon for $130 billion, with no
certainty an agreement will be reached. Bob Varettoni, a Verizon spokesman, declined to comment on the deal with Vodafone.

Shares of Vodafone rose 3.7 percent to 213.80 pence at 10:26 a.m. in London. Verizon fell 0.9 percent to $47.38 in New York on Aug. 30, and AT&T advanced 0.5 percent to
$33.83.

A look at Verizon’s two biggest transactions under McAdam, 59, shows what his company is up to. A year ago, the carrier completed a $3.6 billion deal to acquire wireless airwaves from Comcast Corp., Time Warner Cable Inc. (TWC) and Bright House Networks, its nemeses in the competition for landline Internet users. The companies
also pledged to work together on services for consumers.