Verizon Puts Call in AT&T's Court

Verizon’s deal to buy Vodafone's Verizon Wireless stake gives it access to the division's full cash flows. But the debt that Verizon must assume will likely prevent it from making substantial acquisitions in the near term, offering a window of opportunity for AT&T.

Verizon plans to participate in the government's spectrum auction, which it predicts will happen in late 2014 or early 2015. Otherwise, its priority will be paying down the debt, which it says could take two or three years. That likely gives AT&T at least 18 months to make deals unobstructed by its top rival. That could help AT&T out of a bind. It has had trouble winning over the most price-insensitive customers from Verizon, because of the latter's reputation for a superior network. Meanwhile, it is now competing for lower-end customers with resurgent players T-Mobile US and Sprint. One possibility is for AT&T to buy Vodafone's remaining assets, which have an estimated enterprise value of about $95 billion. This would give AT&T entree to Europe, where it could theoretically break from the trend of falling revenues and compressing margins by building a superior network. But that would require heavy investment and could take years to be proven, making it a tough sell to AT&T shareholders. A better option: AT&T bidding for Dish Network. The satellite operator's wireless spectrum would propel AT&T to first place if Dish succeeds in buying LightSquared, according to New Street Research.