It's inevitable. With the wireless market in the U.S. getting closer to saturation, the only way AT&T (NYSE: T ) and Verizon (NYSE: VZ ) could increase their customer base is by acquisition. But as AT&T's failed attempt at buying T-Mobile USA not too long ago shows, the odds that either of those wireless giants could sneak any significant U.S. wireless purchase past the antitrust scrutinizers would be close to nil.
It looks as if any shopping the duopoly does will have to be beyond our borders.
The great Vodafone question
For Verizon watchers, U.K.-based Vodafone (NASDAQ: VOD ) is a likely target. This company has a heavy presence in Europe, the Middle East, Africa, and the Asia-Pacific region. It even has a significant foothold in the U.S. with its 45% share of Verizon Wireless, something that Verizon, the holder of the other 55%, would love to control.
If Verizon, the No. 1 wireless operator in the U.S., owned 100% of Verizon Wireless by buying out its joint-venture partner, it would almost double its mobile revenue with minimal regulatory problems. But if Vodafone were to sell its share of Verizon Wireless, the price would be quite steep (well above $100 billion, according to at least one analyst), though it would hardly make much sense for Vodafone to sell its interest: Verizon Wireless was its best performing segment and accounted for almost 15% of Vodafone's 2012 profits.
If Vodafone won't sell its share of Verizon Wireless, then why doesn't Verizon just buy Vodafone lock, stock, and barrel? Because, at last look, the price for Vodafone could be as high as $245 billion -- hard to swallow even for Verizon. Though in April, the Financial Times was reporting unnamed sources claiming that Barclays USA was working on a three-way deal whereby Verizon would get Vodafone's Verizon Wireless share and AT&T would get the rest of Vodafone's foreign assets.
Most recently, Verizon is said to be looking across our northern border for expansion opportunities. Reuters has reported unnamed sources saying Verizon made a tentative offer to buy Canadian telecom start-up Wind Mobile for $600 million to $800 million. Reuters also passed on another unnamed source's claim that Verizon has talked buyout with Mobilicity, yet one more Canadian telecom start-up.
Verizon CFO Fran Shammo confirmed that Canadian interest when he told The Wall Street Journal that Verizon was "looking at the opportunity" to go into Canada. "This is just us dipping our toe in the water," he said.
No go as yet for AT&T
As for U.S. No. 2 wireless company AT&T, last week Bloomberg reported knowledgeable people saying it has been holding talks with Telefonica (NYSE: TEF ) to buy a significant part of the Spanish telecom, or some of its other foreign assets.
Bloomberg's sources say that AT&T's overtures to buy 29.9% of Telefonica were dismissed. They also said AT&T has looked into buying the U.K. mobile operator O2, a unit of Telefonica, or some of Telefonica's operations in Latin America.
Another suggested AT&T European target was the U.K. telecom EE, owned by France Telecom and Deutsche Telekom.
AT&T owns 9% of Mexican telecom giant America Movil (NYSE: AMX ) , an investment that may prove a stumbling block if AT&T does make a play for Telefonica. America Movil and Telefonica are rival wireless companies in several Latin American countries, and regulators in those locales could bring anti-competitive objections.
Like sharks, AT&T and Verizon will have to keep moving forward to keep their dominant wireless positions, if not to just stay alive. They may be thwarted from growing at home, but there is a world of opportunity beyond our borders. I think a big buy from either or both of these companies will be coming sooner rather than later.
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