Vodafone Earnings Woes Spur Talk of Sale of Verizon Wireless Assets

Vodafone’s latest quarterly financial report illustrates the reasons why some analysts, and executives at Verizon, might be weighing some action to change the current ownership status of Verizon Wireless, majority owned by Verizon, but with a big minority intBut erest held by Vodafone.

To be sure, Verizon says no such talks are underway. Well, to be specific, Verizon says no talks about a full purchase of the 45 percent Vodafone stake in Verizon are underway. That would still leave some room for less complicate measures, such as a gradual purchase by Verizon of Vodafone shares.

In fact, most observers have noted for a decade that Verizon would prefer to own all of Verizon Wireless. But talk about a Verizon purchase of Vodafone has heated (again) recently. Earnings weakness at Vodafone could be a factor.

Vodafone posted a worse than expected drop in group revenue for the last three months of 2012. The biggest declines came from Europe operations.

Vodafone service revenue dropped by 2.6 percent to £10.37 billion in the fourth quarter of 2012.

Southern Europe services were hit the hardest, dropping nearly 12 percent to £2.3 billion.

In Italy service revenue tumbled 13.8 percent, partly caused by lower mobile termination rates.

Spain revenue was down 11.3 percent. Significantly, that hit was caused at least in part by the ending of handset subsidies.

Africa, Middle East and Asia Pacific service revenue grew 2.7 percent to £3.14 billion.

Verizon Wireless service revenue grew 8.7 percent. Verizon Wireless also paid Vodafone £2.4 billion in dividends,

So the issue for Vodafone is whether the value of the dividend stream is more important than the monetization of Verizon Wireless equity value.