Vodafone and Verizon Wireless: A difficult history but a better future?

The following is a guest post by TC2 managing director Ben Fox, who is based in London.

The relationship between Vodafone and Verizon Wireless is a constant source of interest for TC2's clients. Many global companies have significant relationships with Verizon Wireless in the U.S., and with Vodafone in Europe and beyond. However, despite the major equity relationship between Vodafone and Verizon Wireless, this has rarely translated into any benefits for end-customers.

Let's start with some history. Verizon Wireless began as a joint venture in 2000 between Vodafone (which held US wireless network assets through its earlier merger with Airtouch Communications) and Bell Atlantic (which later became Verizon Communications). The ownership split was Vodafone 45% and Verizon Communications 55%, where it still stands today.

Vodafone has grown massively over the last decade, initially fueled through multiple acquisitions led by its ambitious CEO Christopher Gent, who headed the company from 1997 to 2003, and more recently through a strategy to focus on emerging markets. In 2009 Vodafone is a global wireless service provider with networks in 20 countries and wireless partners in 44 more countries. And of course Verizon Wireless has also grown hugely, now accounting for fully 58% of Verizon Communications' revenue.

Yet, despite all this success separately, Verizon Wireless and Vodafone struggled to find an approach to go to market together. Indeed, to all intents and purposes, it was as if Vodafone's relationship with Verizon Wireless was no more than an equity interest -- they seemed like a silent partner in the joint venture.

There seemed to be two key barriers to any kind of deeper connection:

-- Vodafone and Verizon Wireless had incompatible technologies. Almost all of Vodafone's networks were GSM whereas Verizon Wireless had a CDMA network. Thus, even when Vodafone's users were in the U.S., they were not even able to roam on Verizon Wireless' network, because Vodafone's mobile devices do not work on a CDMA network. (Even now, Vodafone tends to be relatively expensive for users roaming in the U.S. compared to other service providers.)

-- Vodafone and Verizon Wireless are both huge companies that are market leaders in their respective territories. To approach global companies with a joint market proposition, one of the service providers was going to need to take the lead, but neither seemed content to play second fiddle.

This rather dysfunctional relationship between Vodafone and Verizon Wireless reached a low point in 2004 when Vodafone made public overtures to acquire AT&T Wireless. AT&T Wireless' network was built on GSM technology, offering a much better fit for Vodafone, and it would have had a controlling interest, not a 45% stake. Ultimately, the US wireless company then known as Cingular beat out Vodafone for AT&T Wireless, an especially important milestone because Cingular at the time was owned by two US "Bell" companies. One of those Bell companies was SBC, which ultimately also bought the venerable AT&T wireline business and then renamed itself AT&T, rolling up all these businesses into one giant competitor to Verizon.

Perhaps partly as a result, more recently, and slowly but surely, Vodafone and Verizon Wireless have been working on their relationship. Vodafone has made significant investments in its Vodafone Global Enterprise group, including basing much of its sales team in the U.S. (much to the bewilderment of some of Vodafone's European customers who have an account manager based on a different continent). And the two service providers seem to have worked out an approach to the market. Verizon Wireless will now agree to participate in Vodafone contracts that span multiple countries by providing US services under a Vodafone master agreement, thereby at some level providing global companies with a single contract with Vodafone/Verizon Wireless. And importantly, when Vodafone and Verizon Wireless join forces to respond to a Global Wireless Request for Proposal, or some other sales initiative, you don't get the impression that the Vodafone and Verizon Wireless teams only just met in the lobby before the sales presentation.

Going forward the relationship should continue to improve, in particular because Vodafone and Verizon Wireless are finally going to overcome the technology barrier that exists between them when they both deploy LTE based 4G services. It will take some time for this technology to become mainstream, but Vodafone and Verizon Wireless clearly (and I think correctly) see this path to having a common technology platform as crucial to building their relationship.

Overall, Vodafone and Verizon Wireless finally seem to have embraced the concept that their relationship is a differentiator for global customers, are now starting to work together to service those customers, and, in the longer term, have a technology strategy that will pull them closer together, not push them apart. Ultimately though, Vodafone and Verizon Wireless still have much work to do; there remain many challenges for global customers wanting to do global and regional wireless deals (with any supplier), and users need to be wary of sales teams that over-promise and under-deliver.