Verizon’s talks with Vodafone cast doubt on Canadian expansion


Analysts say U.S. telco may turn its attention to Vodafone deal and put Canada on back burner.

Verizon Communications Inc. could put its Canadian expansion plans on the shelf to focus on buying out its British partner and taking full control of its U.S. wireless business.

New York-based Verizon is in talks to buy the 45% stake in Verizon Wireless owned by Vodafone Group PLC. The deal is expected to cost as much as US$130 billion, The Wall Street Journal reported, which would make it one of the biggest acquisitions of all-time.

Verizon has the financial capacity to do the Vodafone deal and a Canadian foray at the same time. The latter would likely cost about C$3 billion including the cost of spectrum in next year’s auction of federal wireless licences. In June, the Globe and Mail reported that Verizon had made a preliminary offer to buy Toronto-based startup Wind Mobile for C$700 million.

However, sources recently told the Globe that Verizon has cooled on the idea of buying Wind or Mobilicity, another struggling wireless startup. The prospect of finally completing a deal with Vodafone that Verizon has wanted to do for years might be the reason, Bay Street analysts say.

“While there has been speculation of such a transaction for many years, if negotiations between Verizon and Vodafone are really heating up we believe that the prospects of a Verizon entry into Canadian wireless could decline significantly,” wrote Dvai Ghose, managing director and head of research at Canaccord Genuity. “Some have argued consistently that Verizon’s purported interest in Canada may have just been a bargaining chip against Vodafone.”

Vodafone shares closed 8% higher Thursday, while Verizon and Canadian incumbents Rogers Communications Inc., BCE Inc. and Telus Corp. saw gains ranging from 2% to 4%.

Canada’s three large telecommunications companies have waged a summer-long public relations battle with the federal government, which is pressing ahead with a spectrum auction that the companies feel give a competitive advantage to Verizon. The companies need spectrum to increase the speeds of their network, and Verizon would be able to bid on two of four available blocks.

It is also able to acquire smaller Canadian players, something the larger companies are restricted from doing. They’ve argued that this creates an uneven playing field, and would give Verizon an unfair advantage over the country’s incumbent providers.

BCE was quick to comment on the Verizon-Vodafone story, suggesting it was further evidence that the company would be able to expand into Canada to compete with domestic carriers without any assistance.

“The rumor confirms what the majority of Canadians have been telling the federal government: a company like Verizon with the scale to consider an acquisition of approximately $130 billion does not need any handouts from Ottawa to compete in the Canadian wireless market,” the company said in a statement.

Still, there’s a chance Verizon could simply handle two deals at the same time.

Tim Casey of BMO Nesbitt Burns said Verizon “would appear to have the financial scale to pursue both opportunities,” adding he expected the company to put a deposit down to secure its place in the January spectrum auction. Wireless companies need spectrum to build networks, and the blocks being auctioned are considered high quality.

“We expect Verizon will submit an initial deposit (which is refundable) to participate in the upcoming 700 MHz spectrum auction,” he said.”If Verizon does not pursue the opportunity in Canada, there does not appear to be another entity that would represent as material a threat to the Canadian incumbent operators.”