Cable / Telecom News

Verizon’s Vodafone buyout means less money for Canada


TORONTO – Since a $2.5 billion investment in Canada seems awful small compared to the $130 billion Verizon is reportedly set to pay Vodafone to buy out its 45% partnership in Verizon Wireless, Canadian wireless industry types are wondering now just what that means.

According to Scotia Capital telecom analyst Jeff Fan, it still means the chances of Verizon making a market entry into Canada is sub-50%

“On the surface, many may say the VZW (Verizon Wireless) transaction should not impact VZ’s ability to invest in Canada given that Canada would not be that material,” he wrote in a note to investors. “However, we believe the VZW transaction could potentially change capital allocation priorities towards debt reduction after the transaction is complete. This could mean less capital available for the Canadian opportunity. We maintain our view that there is a <50% probability that VZ will pursue the Canadian opportunity. If it does enter, we believe it will be spectrum driven and the deployment will be cautious and limited.”

Then again, he notes, “if VZ owned 100% of VZW, it could pursue the Canadian opportunity under VZW instead of VZ which we believe could help extract synergy opportunities.”

However, gaining full ownership of Verizon Wireless by the company would mean less pressure for growth beyond U.S. borders due to the still large growth prospects Stateside in further data growth and developing avenues like machine to machine (M2M) communications. Besides, writes Fan, “we believe every extra dollar spent on buying VZW will mean one less dollar for Canada as we expect VZ will be utilizing a significant amount of its balance sheet capacity to complete the VZW transaction.”

It’s likely Verizon will submit an application and deposit (which is refundable up to the start of the auction) to bid on the 700 MHz spectrum, “but it is far from certain that it will attain two prime blocks at the right price,” added Fan.