As the news heats up on a potential mega deal surrounding Verizon (NYSE:VZ) Wireless, it is important to realize that Vodafone Group Plc (ADR) (NASDAQ:VOD) is a lot more than the 45% share it owns of the domestic wireless asset. Bloomberg reports the deal has been on and off for years, with Verizon Communications Inc. (NYSE:VZ) wanting to unload the shares in order to control 100% of the prime wireless asset in order to compete against AT&T Inc. (NYSE:T).
Vodafone Group Plc (ADR) (NASDAQ:VOD) wants to unload an asset that it doesn’t control because it doesn’t control the distribution of earnings. Not to mention the influx of cash could be used to return capital to shareholders and spend on emerging markets while also expanding current European operations.
The deal is speculated to reach $130 billion for Verizon Communications Inc. (NYSE:VZ) and might include a sale back of the 23% stake of Vodafone Group Plc (ADR) (NASDAQ:VOD) Italia that Verizon owns for over $5 billion. Though not seen as a major hurdle, Verizon must secure enough banks willing to loan around $60 billion of the deal.
Assuming a deal is really close to finalizing, Vodafone Group Plc (ADR) (NASDAQ:VOD) investors should look forward to the possibilities of life without Verizon Wireless.
Top ticking the domestic market
The domestic wireless market is appearing virtually saturated, with the lowest net additions in years during Q2, according to this report. At this point, carriers will only be fighting over existing users via promotions and pricing pressure. Verizon Wireless has the ability to add market share by taking customers from the other competitors, but for the next few years both smaller competitors of Sprint and T-Mobile appear competitive now with cash infusions and mergers after years of losing subscribers to Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).
In total, connected devices now exceed 335 million, with quarterly sequential growth dropping down to the low-single digits after spending the previous years during this decade of around 5% to 10%.
Another interesting trend is that US smartphone penetration is over 60% while total Q2 handset sales were nearly 90% smartphones. Worldwide smartphone handset sales were only 55% during Q2. Another suggestion is that Vodafone Group Plc (ADR) (NASDAQ:VOD) could be leaving the US market while it has peaked and moving into the European markets as 4G takes off and emerging markets are still adding vast sections of users.
The deal impact on the domestic market would likely be limited. AT&T Inc. (NYSE:T) would continue to battle it out for market leader though it could have the upper hand if Verizon Communications Inc. (NYSE:VZ) borrows over $60 billion to fund the deal. If the debt load were to crush Verizon, AT&T might even have the upper hand in what could become a very competitive domestic market.
So much more than Verizon Wireless
The compelling part of a long-term investment in Vodafone has been the relatively low valuation applied to other vast assets it owns. After a big jump to 52-week highs following more talks regarding selling the Verizon Wireless stake for $130 billion, it is worthwhile to note that the whole company is only worth $155 billion now.
The company has vast operations in Europe, Africa, and Asia including emerging markets such as Egypt, India and Turkey. According to the Q2 report, Vodafone has 408 million mobile customers that provide quarterly revenue of over $16 billion. Unfortunately that revenue has been decreasing with prime markets in Europe hammered by the debt crisis. For example, the Q2 report showed both Italy and Spain declining over 10% and Germany and the UK around 5%.