Should AT&T buy Vodafone?

For investors in the UK telecoms group, whether AT&T will mount a takeover bid is the only strategic question that matters, now that Vodafone has agreed the $130bn sale of its Verizon Wireless stake. AT&T shareholders are likewise intrigued by the US group’s very public interest in the European mobile telecoms market.


Both Mr Colao and Randall Stephenson, his counterpart at AT&T, have been tight-lipped. AT&T has looked at options, according to people with knowledge of the group, even if detailed work is unlikely to begin until after Vodafone completes its Verizon stake sale next year. Mr Stephenson will need to weigh the pros and cons of what would be one of the biggest ever UK buyouts

Ready and waiting

Vodafone’s full-year results in May are likely to show the biggest post-tax profit ever for a UK company, of up to £70bn according to Citi. Not a bad start for a company that would inevitably be portrayed as a work in progress should it be acquired.

AT&T wants to make transformational deals across Europe’s mobile markets. Vodafone fits the bill like no other – or at least no contender that could realistically be acquired given governments’ reluctance to allow the sale of national infrastructure owners such as Telefónica’s O2 or France Telecom’s Orange.

There is no state or corporate poison pill within Vodafone. Indeed the company has made itself more attractive financially by recently consolidating £18bn of tax assets into its balance sheet.

Management strategy is broadly aligned: both want to invest heavily in next-generation mobile networks to deliver high-speed internet connections.

The European economy is improving, and telecoms services will likewise recover as people become more comfortable with buying higher-priced mobile and broadband plans.

Europe is only at the beginning of a shift to 4G networks that allow rapid mobile internet services. As Mr Stephenson noted in a speech where he described Europe as “fascinating right now”, mobile internet has not yet taken off as in the US.

“If somebody were to invest aggressively in mobile broadband in Europe would the demographic not lead to the same type of result as in the United States? And I believe fundamentally, yes, it will.”

Defend the castle

Vodafone shareholders may vote to maintain the status quo given the prospect of a recovery in the company’s revenues. Financial performance should improve as regulated constraints on revenues from cuts to mobile termination rates and roaming charges fade and the economy improves.

Vodafone may have sold its best business in the US, but the management has achieved a very good price and secured a considerable war chest to boost operations.

Vodafone shareholders may want to see the outcome of the £7bn “project spring” plan to invest in rapid mobile data infrastructure and fixed-line broadband. And others may just want to see the company remain independent and UK-listed.

Any latent nationalism could be stimulated by politicians worried about the sale of one of the UK’s last global technology champions. Elsewhere in Europe, there are national security concerns about a US group buying its way into strong positions in markets such as Germany. Regulatory approval of the deal in all the many countries where vodafone operates could be arduous.