Shades of Mannesmann: Vodafone should buy T-Mobile US

Why the regulatory problems?

Surely forced/agreed sales are a standard part of US monopolies regulation, as they are in the UK and Europe? You buy a comnpany that gives you a massive monopoly in one sector, as part of getting regulatory approval you agree to sell the bit that's causing the problem. Problem solved, takeover goes through. In the case of T-Mobile / Orange becoming EE, it was radio spectrum they had to sell, this isn't anything out of the ordinary.

Slightly confused history

T-Mobile's purchase of One2One (and another networks in other countries) was fuelled by the privatisation and IPO of Deutsche Telekom, along with the general goldrush of telecoms and internet companies at the turn of the millennium. Telekom's Ron Sommer was just as odious as Vodafone's Chris Gent.

It was also Mannesmann's purchase of Orange that spurred Vodafone to take it over (at ruinous expense to Vodafone's shareholders but at great profit to Mannesmann's shareholders like Deutsche Bank and Hutchison Whampoa who saw a 400 % return within a year). Mannesmann also came with dowry of a part of AirTouch making the sale of Verizon over ten years later less impressive than portrayed in the article.

One has to question the value of buying into the US market at the moment. Money-printing has inflated shareprices and profits seem to have reached their maximum. The market is much less competitive than anywhere else which suggests that margins, and thus profits, will decline. Furthermore, T-Mobile needs a lot of money spending on building out the infrastructure in order to compete with AT&T, Verizon and Softbank.

T-Mobile meanwhile is doing a reasonable job on its own of raising its profile and growing its customer base. Being number 3 does make it a possible target but I suspect the price will still be too much for many. Make take a real outsider such as say Google or China Mobile with pockets deep enough to pay for the infrastructure and keen on disrupting the status quo.

"And of course he was right. Vodafone bought Airtouch for $62bn in 1999 and sold its share for $130bn in 2014. During that time it had seen amazing growth."

I disagree with the above and that Airtouch was a bad buy. First, Airtouch had foreign assets as well. That is what really attracted Vodafone. Some of these foreign assets, Vodafone already owned a portion anyway; now they just owned more of it. They also had to divest some properties as in some cases, they owned a share on a competing provider.

As for the above, yes they paid that much and sold it for that much, but when they took the US assets and combined them with Verizon to form Verizon Wireless, the foreign assets of Airtouch stayed with Vodafone. So, they got much more than $68 billion in the process.

..but what about fixed?

I've also daydreamed about this possibility but it's seems pretty unlikely as Vodafone management are really fixated on combining fixed & mobile telecoms in developed markets and that just wouldn't be possible in the US

Which strategy to pursue?

I've been thinking for several months that Vodafone should try and acquire T-Mobile in the USA. However, I do not think it will be an easy acquisition. First of all as stated above by Charlie Clark would Telekom sell to a European rival? I think if Vodafone paid a large enough fee then Telekom would but there would probably have to be an asset swap.

Let me suggest this: Vodafone recently acquired Kabel Deutschland for €7.7 billion. Telkom could tell Vodafone we want ownership of Kabel Deutschland as part of the T-Mobile USA sale.

Vodafone if its playing the long game should agree to this. Vodafone acquiring T-Mobile USA would mean there could be no takeover by AT&T and therefore Vodafone would remain safe. Given the huge profitability in the U.S. mobile sector (see Verizon) and the Federal Government's decision to block M&A activity to keep four nationwide mobile network providers (Verizon, AT&T, Sprint and T-Mobile) there is regulatory encouragement for Sprint and T-Mobile to continue to grow and re-balance the mobile landscape from the dominance of Verizon and AT&T.

Vodafone can use its brand to become a truly global mobile network and establish itself in the USA.

This would allow Liberty Global to continue buying up European assets in the cable industry and then sometime within the next few years to next decade Liberty Global (a John Malone company) and Vodafone merge which makes complete sense given their various synergies. The sale of Kabel Deutschland to Telkom would mean there would be no regulatory issues in Germany from a Vodafone/Liberty being too dominant.

Vodafone would become far stronger in Europe and the U.S.A after these deals.

Then in the longer term once Vodafone becomes established in the USA Vodafone acquires Charter Communications (another John Malone cable company) which creates more synergies and quad play opportunities.

Will some of these deals happen - yes, most probably.

Will all of these deals happen - no but I believe they should and would be beneficial to all the companies involved.

COMPLETELY AGREE

Currently I am a T-Mobile USA customer. I have ALWAYS been a fan of Vodafone, I love the name, logo, their presence as a carrier in multiple countries.... I hated that they were only ever displayed on Verizon phone's "global SIM card" as a small logo next to the big Verizon check mark. T-Mobile has grown quite substantially over the past year, however I think to become a truly considered and respected company, they need a more respected brand backing them. T-Mobile is doing well, however they are still laughed at when people say "I have T-Mobile." I would love my iPhone to display "vodafone US" instead of "T-Mobile," and I would love to see the T-Mobile logo and stores all replaced with the big Vodafone red rain drop. The USA would be a great place for re-enter, this time with a full brand presence. This would be a great opportunity for Vodafone to offer enhanced roaming plans from Europe to America as well! I truly hope something like this happens, I honestly can't describe how happy I'd be to finally be able to purchase Vodafone in my home country.