There is upheaval afoot in the telecom landscape -- again.
There's tension within Verizon Wireless as co-owners Verizon Communications (NYSE: VZ) and Vodafone (NYSE: VOD) have different opinions on what the American wireless giant should do. Vodafone wants dividend payments out of the fat cash streams produced by Verizon Wireless, but Verizon holds 55% of the venture and prefers to pay off debt first. The bigger bully makes the rules, so no cash flows in to Vodafone.
This week, London's Daily Telegraph reports that the debt rebalancing is nearly complete -- which gives Vodafone a much stronger negotiating position. The heads of the companies have reportedly been talking strategy, recently, but nobody knows exactly what will come of it. Some telecom analysts now see Vodafone forcing Verizon's hand into sharing the wireless wealth through finally having the wireless unit pay out a dividend, but others think an outright all-stock merger between Vodafone and Verizon looks more likely. A third option wherein Verizon buys out Vodafone's share of Verizon Wireless is improbable because Verizon just ain't that rich and the tax hit to Vodafone would be too large.
The American market for wireless communications has never been particularly stable. Remember Cingular Wireless, itself an agglomeration of networks that included AT&T (NYSE: T) Wireless, SBC Communications, BellSouth Mobility, and Pacific Bell Wireless? Yeah, that's the AT&T wireless you see selling Apple (Nasdaq: AAPL) iPhones today. Alltel Wireless ruled the fifth largest wireless network in America, but is now a subservient part of Verizon Wireless. Sprint swallowed Nextel in 2005 to conjure up the Sprint Nextel (NYSE: S) hydra and a buyout of prepaid service specialist Virgin Mobile USA is pending. Things move quickly around here, and another big-time merger is surely not out of the question.
The path of least resistance speaks for some simple dividend payouts, but Vodafone certainly has the global ambition and wherewithal to pull off a high-stakes merger with Verizon. Vodafone also boasts much higher net profit margins than Verizon -- perhaps a merger would bring about tighter operations and separate landlines from wireless once and for all.
Anything is possible, but the telecom sector is never boring. What should Verizon do with those nosy Brits? The comment box below is dying to hear your opinion.
