Vodafone Hopes to Achieve Greater Presence in the U.S.
By ALMAR LATOUR and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL
LONDON -- Vodafone Group PLC will put a high priority in the year ahead on solving its biggest strategic problem: the lack of a strong presence in the U.S, the mobile-phone operator's chairman said.
"It is certainly quite high on the list of the directors' tasks in 2003," said Lord Ian MacLaurin. "Watch this space."
Vodafone, with more than 100 million subscribers in 28 countries, dominates Europe and has substantial operations in Japan and elsewhere in Asia. In the U.S., however, it has only a 45% stake in Verizon Wireless, which is 55%-owned by Verizon Communications Inc. That makes it hard for Vodafone to present itself as a truly global operator, especially because Verizon Wireless doesn't use Vodafone's brand or preferred technology.
Vodafone executives have long suggested that this problem didn't need immediate attention. Now, however, they seem to be seeking a solution. Vodafone may simply find more effective ways to work with Verizon. But company officials don't rule out exercising an option to sell their stake in Verizon Wireless to Verizon Communications -- a possibility that has been described internally as "the nuclear option" -- and strike out on their own in the U.S.
In a sign of its eagerness to solve the problem, Vodafone last week appointed a new chief executive officer with long experience in the U.S., Arun Sarin. Mr. Sarin, an American citizen, helped build up U.S. mobile operator AirTouch before Vodafone bought it in 1999. He is due to succeed Sir Christopher Gent, effective July 30.
Analysts say the company needs a stronger presence in the U.S. to attract business users for its new services, including wireless remote access for laptops and personal digital assistants. Business users are widely seen as the initial driver for such new services as wireless e-mail and Web surfing.
While Vodafone's global network is far more extensive than any of its rivals', it lags behind T-Mobile, a unit of Deutsche Telekom AG, in one important respect. T-Mobile acquired U.S. operator VoiceStream last year and has since made great play of its position as the only mobile phone operator to have a brand that spans the Atlantic. T-Mobile ads in Europe show U.S. tennis star Andre Agassi swapping picture messages with his German wife, Steffi Graf.
There is no simple solution for Vodafone. Under one scenario being considered, the company would create a service using both the Vodafone and Verizon brands, with phones capable of working under either U.S. or European technical standards. That would make it easier for Vodafone to promote a global package of services. But Vodafone would still have only a minority stake in the U.S. operation and so couldn't control its destiny in the world's richest market.
A bolder step would be for Vodafone to exercise an option in its joint-venture agreement with Verizon Communications that would force the New York company to buy Vodafone's stake in the wireless operation for between $10 billion and $20 billion in cash or Verizon stock. The option could be exercised, in one or two stages, as early as July 2003. The amount paid would be determined by an independent appraisal of the joint venture's value. If Vodafone uses the option to reduce its stake in the venture below 20%, it would then be free to begin competing on its own in the U.S., perhaps by acquiring another U.S. operator.
But buying a U.S. operator would be expensive, and Vodafone's shareholders, eager for the company to focus on milking profit from its existing operations, might rebel. What's more, selling shares in Verizon Wireless could subject Vodafone to capital-gains taxes.
Lord MacLaurin was coy when asked whether Vodafone might use the put option. "We'll see, won't we," he said. Other Vodafone officials said they had no plans to rock the boat with Verizon, at least for now. It isn't clear how Mr. Sarin will address the issue when he takes the helm in mid-2003. A Vodafone spokesman said Mr. Sarin wasn't available for comment.
If Vodafone does exercise that option, "it's not like, 'Oh my God, what would we do?' " said Verizon spokesman Peter Thonis. "It's like, 'Bring it on.' "
He added: "This is a very profitable and successful property and if for some reason Vodafone took things in another direction, there would be no negative financial implication for us." While issuing $10 billion in new shares would dilute Verizon's shareholders, Mr. Thonis said that the profitability of the company would rise as a result. |
