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Verizon Wireless partners hear something different now

by Chris Nolter | Published March 26, 2012 at 4:45 PM

The recent speculation in the British press about Verizon Communications Inc. and wireless JV partner Vodafone Group plc is part of a running tradition.

Rumors of a deal between the parents of Verizon Wireless have been persistent in recent years, and factors such as Verizon Wireless' proposed $3.6 billion spectrum deal and commercial agreement with cable operators could make the issue more provocative.

One on level, the renewed speculation reflects complexity of aligning corporate interests in joint ventures.

Even though Verizon Wireless is arguably the best-run wireless company in the U.S., it remains a source of corporate angst.

"This is unique in terms of its longevity and success," said Jonathan Schildkraut of Evercore Partners Inc. One reason may be that the JV was a combination of two operating properties, he noted, rather than a de novo carrier. And telecom JVs don't have the best track record.

There was the fizzled $1 billion JV between BT Group and MCI Communications Inc. in the 1990s, known as Concert Communications Services.

Sprint Nextel Corp. has experimented with partnerships with cable operators since the 1990s.

The former Cingular Wireless does provide an example of a successful wireless JV. However, it caused tension between parents SBC Communications Inc. and BellSouth Corp. at times. It is worth noting that SBC bought out its JV partner, forming what is now called AT&T Inc.

A sale of Verizon Wireless to one of the partners would be massive and would carry a burdensome tax bill. Merging the parents would be an even larger deal, and would be almost unimaginably complex.

Now that Verizon Wireless has resumed paying a dividend to its parents, there may be less pressure for the companies to resolve their pact. The wireless unit is an increasingly important means of support for Verizon's own dividend.

Beside the financial issues of price and dividend support, the relationship between wireless and landline telecom providers is evolving.

"Wireless is very important to the enterprise and small-to-medium business side of what Verizon does." Schildkraut said.

"On the residential side," he added, "I don't see a great complement."

Verizon Wireless' proposed deal with cable operators indicates an agnostic approach to doing business with wireline carriers, by fraternizing with its parent's mortal enemy. The wireless JV would partner with Comcast Corp., Time Warner Cable Inc. and Bright House Networks, according to the deal struck in December. The telecom has reached a similar agreement with Cox Communications Inc.

For the cable operators, Schildkraut said, the Verizon Wireless deal was probably recognition that wireless is the most important service to have to penetrate small to medium businesses.

But the cable deal also says something about the direction of mobile carriers.

"From a wireless perspective," Schildkraut said, "you are better served being able to operate with a number of wireline carriers."

In five to 10 years, Schildkraut observed, Verizon Wireless could make a better fit with minority partner Vodafone -- a wireless operator -- than with wire-bound Verizon.

One certainty is that speculation over the relationship between Verizon Wireless' parents will continue to resurface as long as there is a relationship.

It is not clear if regulators will allow Verizon Wireless' cable pact to close. But if the cable partnership is forged, it could reorder the JV's internal politics.

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Verizon Wireless partners hear something different now

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