At the Heart Of Verizon-Vodafone, Differing Outlooks for the US Market

At the center of what could be a $130 billion deal between Verizon Communications and Vodafone Group are sharply different views of the US wireless market.

The companies’ joint venture, Verizon Wireless, is the largest carrier in the US, a market with only four national players and a lot less pressure on price than in the hyper-competitive European market. But that is shifting, as No. 3 carrier Sprint and No. 4 T-Mobile US get better capitalized and more aggressive, raising the question of whether the market might be at its peak. Verizon is betting the answer is no as it negotiates to buy Vodafone’s 45% stake in Verizon Wireless and effectively double down in the US. Vodafone, on the other hand, may have been motivated to sell, in part, on the consideration that the value of its stake may not have much further to rise. It remains to be seen which was right. The idea of buying Vodafone’s stake has been on the table for years. Vodafone had an option to sell its stake in 2004 for roughly $10 billion, but it didn’t exercise it. Holding out will look like a smart decision if the deal goes through now. Holding out further might not make as much sense. Even though the US market is one of the world’s strongest in both revenue growth and margins, there are more active cellphone subscribers than people in the US, and there are signs the industry may soon descend into a battle over price. Annual subscriber growth in the wireless business has shrunk to about 2%, down from around 15% nine years ago, according to Moffett Research.