Verizon in talks to buy Vodafone stake

Verizon Communications and Vodafone moved one step closer to parting ways.

Vodafone, the British telecommunications giant, confirmed that it was in talks to sell to Verizon its 45 per cent stake in Verizon Wireless.

The future of Verizon Wireless had been in the balance in recent months after speculation surfaced that Vodafone would sell its holding in the joint venture, a deal that analysts said could be worth up to $US125 billion ($140 billion).

The potential deal would be one of the largest worldwide in the last decade, and rival Vodafone's $US181 billion takeover of German operator Mannesmann in 2000.

Analysts say Verizon's purchase of the 45 per cent of Verizon Wireless it does not already own would help the company to dictate strategy as it looks to invest billions of dollars in high-speed data infrastructure.

Verizon is still the No. 1 mobile phone carrier in the United States by market share, but it faces formidable competition from AT&T, the No. 2 carrier. The smaller carriers, Sprint and T-Mobile USA, offer lower-cost phone and data plans to try to compete, but to little avail - AT&T and Verizon still account for two-thirds of overall subscribers.

The wireless business, one of the most lucrative in the world, is crucial to the American economy. Worldwide, the wireless industry, already worth $US1.6 trillion, is expected to become a multitrillion-dollar market in the next decade, said Chetan Sharma, an independent telecom analyst that does consulting for carriers. With already 10 billion connections worldwide, the number of cellular subscriptions is on track to outgrow the human population.

For Verizon, the challenge will be proving to investors that there will be financial benefits to having complete ownership of its wireless unit. The company already owns 55 per cent, so assuming full ownership will not allow it to gain new assets.

The deal would unlikely have any meaningful effect on Verizon customers. In theory, having complete ownership of the wireless venture would allow Verizon to integrate the two businesses more tightly, which might lead to better deals on bundles with wireline and wireless products, said Jan Dawson, a telecom analyst for Ovum. However, Verizon and Vodafone have already been doing combined marketing for years, he said.

For Vodafone, the world's second-largest mobile phone operator behind China Mobile, an influx of cash would allow it to strengthen its core European operations. It would also allow Vodafone's investors to benefit through share buy-backs.

"Vodafone investors are expecting a fairly material payout," said Paul Marsch, an analyst at Berenberg Bank in London. One of the biggest hurdles to the potential deal is the large tax bill Vodafone would have to pay to dispose of its holding in Verizon Wireless. Earlier this year, however, Verizon said it could structure any potential transaction to limit Vodafone's tax liabilities.

Analysts said any prospective deal would likely involve a cash-and-stock offer that would give Vodafone roughly a 30 per cent stake in Verizon.

Vodafone's chief executive, Vittorio Colao, has previously said that he was open to selling the holding in Verizon Wireless. The prospective disposal could be announced as soon as early next week although Vodafone said in a statement: "There is no certainty that an agreement will be reached." If Verizon and Vodafone were to come to an agreement, each company would have to take on a different outlook for the American phone business, said Craig Moffett, an analyst for Moffett Research.

To justify what would be one of the largest deals in history, Verizon would have to be confident that the growth of Verizon Wireless will remain consistently strong, he said.

By contrast, Vodafone would have to believe that the American wireless business is stagnating and that Verizon Wireless cannot grow much more.

"For investors, the pertinent question is therefore: which outlook do you believe?" Moffett said in a research note.