Vodafone Wasn’t Skeptical of Growth in U.S. Wireless Market, McAdam Says

Industry observers had told us they don’t expect the deal to face much scrutiny among regulators, and analysts weren’t focused on regulatory implications during Tuesday’s teleconference. “Let me be clear, Vodafone did not hinder us,” said McAdam. “They were very supportive of what we wanted to do as a business. This is more about market potential moving forward and our ability to compete in a more complex environment."

McAdam challenged any assertions that Vodafone’s decision reflects concerns about the U.S. market by Vodafone or Vodafone Group CEO Vittorio Colao. “I have never heard Vittorio say anything publicly or privately that would indicate he is less than bullish on the U.S. market,” McAdam said. “And obviously, we are very bullish on the U.S. market.” To say otherwise is a “conspiracy theory,” he said.

McAdam attempted to put to rest rumors Verizon would make a big play in Canada’s wireless market. “The press made a lot more of our interest in Canada than there was on the fourth floor of Basking Ridge,” he said, referring to the location of Verizon executive suites. “It is something that we looked at, we look at a lot of different countries around the world, will continue to do that. But it was always on the fringe for us.” McAdam said Verizon will look at other international investments if they make sense. “We have got service in a 150 countries already,” he said. “We've got 35 cloud centers. We've got an extensive IP network: About 70 percent of the world’s Internet traffic touches our IP network everyday. So we've got a lot of presence internationally right now. And we'll look for selective things that make sense."

A few critics are emerging. “The deal won’t change much if anything about who’s holding licenses or calling the shots at Verizon Wireless,” said Free Press Policy Director Matt Wood. “But it’s another sign of Verizon’s intent to abdicate its wireline business, let cable remain the dominant player there and concentrate on monetizing its wireless business in a lucrative duopoly with AT&T.” Wood expects the companies to say the deal is good for competition. “Verizon wouldn’t be plunking down $130 billion if it weren’t immensely confident it can get that money back from its customers in a market with too few real alternatives,” he said.

Whether Verizon cut a good deal depends on how the market develops, wrote analyst Craig Moffett of MoffettNathanson in a Tuesday research report. “Verizon will have gotten a good deal if the U.S. wireless market continues on its current path of slow but steady growth with peak margins, and if Verizon Wireless maintains its current dominance,” he said. “Conversely, Vodafone will have gotten the better of the deal -- and Verizon will have overpaid -- if conditions in the U.S. wireless market continue to weaken, or if the relative position of Verizon’s competitors improves."

The deal should face “minimal regulatory headwinds,” said Medley Global Advisors analyst Jeffrey Silva. “The structure of the deal doesn’t lend itself to a full-blown regulatory review,” he said. “Any time you're changing ownership, that is something the FCC will have to be kept apprised of.” Although Verizon is likely to face minimal regulatory review on the Verizon Wireless deal, it will continue to face “strict regulatory scrutiny” on other matters, including rules governing the FCC’s upcoming incentive auction and the spectrum screen, Silva said.

Vodafone plans to give its shareholders about $84 billion of the proceeds from the Verizon Wireless sale, including more than $60 billion in Verizon shares and about $24 billion in cash. Vodafone plans to use about $9.3 billion of its proceeds from the Verizon Wireless sale for “Project Spring,” a three-year project to invest in its infrastructure. Vodafone will invest between $4.2 billion and $4.6 billion of the Project Spring funds on its mobile network, including speeding up deployment of 4G in major European markets and increasing its 3G footprint in the rest of its European and emerging markets, Colao said Tuesday during a conference call. Vodafone will invest up to $2.3 billion on increasing its broadband footprint, Colao said. Up to $1.3 billion will go toward enhancing Vodafone’s enterprise capabilities, with an additional $1.3 billion invested in modernizing Vodafone’s customer service apparatus, he said. Vodafone will invest up to $933 million on upgrading its distribution apparatus and other customer service matters, Colao said. Vodafone will use the remainder to pay down its debt. ,