Verizon-Vodafone Impact: 'Colossal'

Verizon’s push to take full control of its US wireless business could spark a new round of mergers across the telecom industry. Verizon's talks with Vodafone Group, which owns 45% of Verizon Wireless, could soon result in a deal worth as much as $130 billion, said people familiar with the matter. That would be the second-largest acquisition on record, bigger than Exxon's purchase of Mobil or the ill-fated merger of America Online and Time Warner in 2000.

A deal would give Vodafone plenty of cash to spend and creating openings for other companies like AT&T to maneuver as well. It comes as conditions improve for the highly competitive European telecom market to begin a much sought consolidation. But first a deal has to get done. In an indication the companies are moving closer after years of false starts, Verizon has scheduled a board meeting to consider the matter amid expectations a deal could be sealed by early next week, people familiar with the matter said. Verizon currently owns a 55% stake in Verizon Wireless, the top U.S. cellphone carrier. Since Verizon already controls the carrier, its 100 million subscribers may not notice any change despite the deal's giant size. But the financial implications for the company are substantial.

Mustering $130 billion is no small feat for a company with a market capitalization of $138 billion. Verizon reportedly plans to do it with a combination of cash and stock. The cash component would require borrowing $50 billion or more. Verizon's shares are down 12% since their April highs, meaning its stock won't stretch as far. In the short term, though, higher leverage could constrain Verizon's ability to do larger deals such as buying Dish Network. It might also delay Verizon's entry into Canada, where it has reportedly been in talks to acquire one or two struggling carriers. Higher debt could also theoretically prevent Verizon from participating in the auction for spectrum relinquished voluntarily by broadcasters, which the Federal Communications Commission plans to hold in 2014. But considering the high price Dish Chairman Charlie Ergen would likely demand and with AT&T, another potential bidder, currently tied up with two pending deals in front of the FCC, Dish seems unlikely to be bought for now. The Canadian deals, which would likely be worth less than $1 billion, might be small enough to get done anyway. And despite the FCC's goal, few analysts think the spectrum auction will happen before 2015. For Verizon, a bigger issue is that the deal likely wouldn't strengthen its ability to defend its U.S. wireless-market share as a stronger Sprint and T-Mobile US bring more competition.