AT&T’s ambitions to expand in Europe have been put on ice, for now. And the NSA spying scandal is at least partly to blame.
America’s second biggest wireless carrier said in a statement to the London Stock Exchange this morning that it does not intend to make an offer to buy UK-based, pan-European peer Vodafone, putting months of speculation about another mega-deal in the telecoms sector to bed. According to Reuters, AT&T’s planning for a potential deal had been “complicated” by revelations about the US National Security Agency’s spying program.
Bankers have been licking their lips at the prospect of a deal between these two companies ever since Vodafone offloaded its 45% stake in its US wireless business to Verizon last September for $130 billion. Shortly after, AT&T CEO Randall Stephenson openly described Europe‘s wireless broadband market as a “huge opportunity for somebody.”
Since then, AT&T has been accused of being directly involved in the NSA’s vast surveillance programs, which reportedly even targeted German chancellor Angela Merkel, infuriating policymakers on the continent and lessening the chances of a deal.
Today’s statement followed weekend reports that Stephenson had met with the EU’s top telecoms regulator at the World Economic Forum in Davos last week, which was an interpreted as a sign he was readying the ground for a Vodafone bid. After today’s denial, under UK takeover laws, AT&T will have to wait six months if it wants to reverse course.
What it chooses to do then remains to be seen. But if the NSA spying scandal ends up thwarting AT&T’s European ambitions, it might end up being a blessing in disguise. Vodafone shares are currently trading at their highest levels in 13 years, making a deal at current prices extremely expensive. And to get it over the line, AT&T would probably have to make concessions such as opening local data centers, or divesting spectrum licenses, which could prove costly.
The expansion is predicated on the belief that Europe’s fragmented telecoms regulation will eventually be harmonized. This appears naive, if history and experience in other aspects of the EU’s decision making process are anything to go by.
There could also be better options for AT&T closer to home. Macquarie Equities told clients this morning it believes that today’s news”significantly increases” the chances AT&T will either buy or partner with US satellite operators. (Macquarie has buy recommendations on both Dish Network and DirecTV, so it’s has an interest in saying this.) Doing so would give the company a national video footprint at a time when its rival Verizon is expanding further into pay TV.
It’s impossible to predict how US regulators would react to such a deal. But it’s safe to assume the NSA’s spying wouldn’t get in the way.