Strains Threaten Verizon and Vodafone Joint Venture

question 28

Essay

Strains Threaten Verizon and Vodafone Joint Venture
Vodafone Group, the U.K. based cell phone behemoth wanted to expand geographic coverage in the U.S. In 2000, they teamed up with Verizon Communications to form Verizon Wireless. The profitable business had annual revenues of $20 billion and a coast-to-coast network serving more U.S. customers than any other carrier. However, Vodafone's global ambitions and its buy-out option threatened to put the venture at risk of breaking up.
Vodafone executives expressed frustration by the company's lack of control in the U.S., because it owns just 45 percent of the venture. Vodafone seeking to establish its own brand name has been unable to get its name attached to a single product of the joint venture. Moreover, it has been unable to persuade the venture to use a technology compatible with that used by Vodafone in most of the 28 other countries in which it does business. This issue has proven to be particularly irksome since part of the Vodafone strategy is that its European, Asian, and Middle Eastern customers would be able to travel to the U.S. and use their cell phones on Vodafone's network in the U.S. Vodafone also complains that Verizon Wireless has been slow to push next-generation wireless services such as photo and text messaging. Verizon Wireless also receives three times as many customer complaints as the average of Vodafone European units. Vodafone is reduced to be a passive financial investor in the operation. The two partners are also at odds in their strategies for owning wireless assets. Verizon Communications increasingly uses the venture to support its declining land-line telephone business, by bundling wireless at a discount with other services. Vodafone considers landlines as having no future for its strategy.
The cloud hanging over Verizon Wireless is the put that Vodafone received as part of its initial investment which gives it the right to sell its interests to Verizon at certain points through 2006. Vodafone can demand that Verizon pay it $10 billion in return for its stake. Mindful of the put, the partners have discussed friendlier ways to alter their relationship. For example, Vodafone could swap part of its stake in the venture for Verizon Communications' interest in Italian wireless operation Omnitel. Anything that reduced Vodafone's interest in Verizon Wireless below 20 percent would free Vodafone from a non-compete clause that precludes the firm from opening up its own operation in the U.S.
-To what extent are the problems plaguing the venture today a reflection of failure to?
communicate during the negotiations to form the joint venture? What should they have done
differently?