AT&T's Gently Simmering Vodafone Ambitions
Jan 30, 2014 5:00 AM PT
AT&T just said it would not bid for Vodafone -- at least not within the next six months. Over the years, we have seen the wireless and telecom sectors change dramatically in wave after wave of mergers and acquisitions. As U.S. carriers look for new areas of growth, will they start looking to expand overseas? I think so -- and not just AT&T, but Verizon as well, and then others. So what will this mean?
First of all it is important to recognize that change is good. Growth is good. Change creates a playing field that encourages growth. Growth helps companies, investors and workers. It boosts employment, taxes, and pretty much everything else.
Telephone, wireless, cable television and other carriers in the U.S. have not yet moved aggressively into outside markets. That's largely because until recently, it provided an enormous growth opportunity. However, investors demand ongoing growth, so as it slows inside the U.S. because of a maturing marketplace, companies will look to new areas.
It's a Small World
Investment in other countries happens all the time. Many companies headquartered outside the U.S. already do business across their borders, including in the U.S.
A few examples:
- Just look at the recent merger between Sprint and Softbank from Japan. Softbank is not done yet, either. Expect more mergers.
- Look at Vodafone, a British company that owned almost half of Verizon Wireless until Verizon recently acquired its share, as another example.
- Or look at T-Mobile USA, which is owned by Deutsche Telekom from Germany, as another.
So countless companies are already doing multinational business. Many U.S. companies already have an international presence, but now more U.S. companies appear to be getting very close to jumping into the global marketplace as well.
There are huge international opportunities they want to take advantage of. If they are competing with foreign companies in the U.S., they of course want to compete with them in a larger playing field.
Right now, they may walk through a global orchard full of ripe, red apples yet they're able to pick only from certain trees marked "U.S." Today, American companies are waking up to the huge opportunity to pick from the entire global orchard.
Global expansion may not have made sense yesterday, when these companies were regional, but now it no longer makes sense to wait. Today these companies are national players, and there is no reason they shouldn't be on the global playing field.
I think rather than just jumping in, American companies that never really did this before want to make sure everyone is on board and supportive in the idea of global expansion. They want everyone -- from investors and regulators to workers, customers and everyone else -- to buy into this growth plan. That's why we are hearing more talk about this next big move.
Going Global to Grow
So, who will be successful right out of the gate? In the early years, companies like AT&T and Verizon will start to compete in other countries and make acquisitions. They likely will hit the ball out of the park in some instances and struggle more in others -- but it is all one big learning experience, and that's the important part.
Will AT&T eventually acquire Vodafone? Perhaps. I would think if we can read the leaves correctly, the desire is there -- however the timing is not right now. Just because the answer is no today, don't think AT&T is not interested. I think AT&T is interested in acquisitions and doing business in other countries.
Whether AT&T will make a move on Vodafone after six months is unknown today, but we should keep our eyes open. Other interested companies, both in the U.S. and abroad, could make a similar move.
Vodafone will be one target, but many other companies in other countries will be sought after as well. It won't just be AT&T -- Verizon will on the move as well. Perhaps as they succeed, we'll see smaller competitors jump into the global marketplace. There are plenty of others: Sprint, T-Mobile, CenturyLink and Windstream to name a few.
Don't forget the cable television industry, either. Companies like Comcast, Time Warner Cable and Cox may be players as well, as the global marketplace grows and changes over the next several years.
This kind of expansion could make a great deal of sense for U.S. companies. The U.S. market is becoming much more competitive, and that is why carriers like AT&T and Verizon are looking for new ways to grow.
In fact, I see the U.S. industry being split into two sides. One side is the global players, and the other side is domestic-only competitors. That list will change over time.
Many other countries have wireless voice and data; however, the data portion is generally not as fast. While U.S. residents have 4G in most markets, most other countries still use 2G and 3G. This is another source of growth opportunity for U.S. firms.
Growth is on everyone's mind -- especially as growth in the smartphone sector starts to slow. Just look at the iPhone results in Apple's earnings report earlier this week. If a slowdown is threatening Apple, I think we can assume it will threaten other handset makers as well.
That's why wireless carriers like AT&T Mobility and Verizon Wireless are helping other industries -- like healthcare, automotive, retail and more. That's the same kind of hunger that will drive global expansion.
The wild growth curve that wireless has seen in recent years may be tapering, but that does not mean growth will slow. I don't see growth slowing at all -- just changing. Growth will come from other areas, like helping other industries go wireless, from international and global expansion, and much more. So keep your eyes open for AT&T's Vodafone interest to increase over time -- and expect other deals as well.