Verizon-Vodafone Deal Could Possibly Change Odds of Canadian Entry

The Wall Street Journal reports Verizon has restarted talks with U.K.-based Vodafone to buy out the latter’s 45% stake in their American wireless joint venture:

Verizon has sought for years to buy out Vodafone’s 45% stake in Verizon Wireless, the largest U.S. cellphone carrier, but the companies have never been able to agree on price. They remained far apart earlier this year, with Verizon looking to pay around $100 billion and Vodafone hoping for more like $130 billion, people familiar with the matter said at the time.

With this possible deal underway, some Canadian telecom analysts believe it could affect Verizon’s chances of entering Canada. Speaking with the Financial Post, Dvai Ghose, head of research at Canaccord Genuity issued the following note to his clients:

“If negotiations between Verizon and Vodafone are really heating up, we believe the prospects of a Verizon entry into Canadian wireless could decline significantly,” Dvai Ghose, head of research at Canaccord Genuity, wrote in a note to clients.

“This is because we assume that Verizon’s balance sheet priority is Verizon Wireless, not Canada,” he said, adding, “[A]nd we wonder if Verizon management would want to detract their focus on consummating a transaction with Vodafone by investing in Canada, especially as the opportunity in Canada is small for a behemoth like Verizon.”

Ghose goes on to speculate Verizon’s interest in Canada was possibly a bargaining chip in negotiations with Vodafone. However, some others disagree. Kevin Smithen, a New York-based analyst with Macquarie Securities, says gaining back 100% control of Verizon would allow the company to enter Canada more easily:

“Controlling 100% of its free cash flow and board seats gives Verizon more strategic flexibility in the future for expansion into Canada as well as content and spectrum deals,”

Greg MacDonald covers Canadian telcos for Macquarie–he insists there is a greater than 75% probability Verizon will expand to Canada and remains cautious on incumbent stocks. The news of the Verizon-Vodafone deal actually has benefitted the Big 3, as their stock prices have risen this morning from 1.6% to 3%.

Despite the ongoing PR campaign by Rogers, Telus and Bell to convince Ottawa to change its wireless rules deemed to favour Verizon, the Federal government has maintained nothing will change and the wireless spectrum will go on as planned.