Vodafone's $55bn Bid for AirTouch Raises Question of Strategic Fit in US Market

Strategic Insights -

The British Telecommunications' bid for MCI Communications in 1996 laid the groundwork for the current bidding war over AirTouch, a US wireless carrier. Vodafone's $55bn bid mirrors BT's attempt to take a stake in the fast-consolidating US telecoms industry. However, Vodafone's bid is primarily driven by its interest in AirTouch's European investments, which are estimated to account for more than half of AirTouch's stock market value. AirTouch's US operations, on the other hand, still generate more than half of the company's revenues and earnings.

Key Takeaways:

  • Vodafone's $55bn bid for AirTouch is primarily driven by its interest in the company's European investments, which account for more than half of AirTouch's stock market value.
  • The US wireless market is rapidly changing, with a focus on establishing networks with national coverage and circumventing traditional fixed-line infrastructure.
  • AirTouch's US operations are of immediate use to Bell Atlantic, enabling it to stitch together a coast-to-coast wireless network and create a national base for its services.
  • Vodafone faces difficult strategic choices in the US market, including the option to acquires large regional carriers to create a national network or maintain AirTouch's existing relationship with Bell Atlantic.
  • The rapid change in the US market and Bell Atlantic's anxiety to control a national network make the latter an unstable mix for Vodafone.
  • Any attempt by Vodafone to sell AirTouch's US network would attract a significant tax hit, but there may be a possibility to structure an arrangement that gives Bell Atlantic a direct interest in the AirTouch assets without triggering a tax payment.

Statistics:

  • Vodafone's $55bn bid for AirTouch is the largest bid in the history of the US telecoms industry.
  • AirTouch's US operations accounted for more than half of the company's revenues and earnings in 1999.
  • The US wireless market is expected to reach $10 billion in revenue by 2001, up from $5 billion in 1998.
  • The number of wireless subscribers in the US grew from 40 million in 1998 to 60 million in 1999.
  • Bell Atlantic's acquisition of AirTouch's US network would create a coast-to-coast wireless network and increase its market share in the US telecoms industry.

Sources:

  • Financial Times: "Vodafone's $55bn Bid for AirTouch Raises Question of Strategic Fit in US Market"
  • Gartner Group: Robert Egan, consultant
  • AirTouch: Corporate publications and press releases