Verizon May be Seeking Merger

The decision by Verizon Wireless to start testing Long-Term Evolution (LTE) mobile technology for rollout early in the next decade may lead to an even bigger change down the road.

The emerging high-speed infrastructure, which is along the evolution path from Global System for Mobile Communications (GSM), marks a shift by Verizon from the Code Division Multiple Access (CDMA) technology it uses today. But it would lead to a consistent system across Verizon's network and that of its part owner, Vodafone Group, which operates GSM-based networks on four continents. Both companies will test LTE at the same time, starting next year.

But next-generation infrastructure may be merely the first thing the two companies agree on, said analyst Jack Gold of J. Gold Associates. He thinks it will renew their quest for something that's never made sense until now: a buyout.

"It would make no sense for Vodafone to own both a GSM and a CDMA network," Gold said. "Now it's much more attractive for the two entities to become one." It's not clear which of the co-owners would buy out the other, but they might do so to keep up with what Gold sees as growing consolidation in the global cellular industry. Gold expects to see just three to five major mobile operators in the world within a few years.

Technology itself will help drive this trend, Gold believes. Because LTE and the other technologies promoted as 4G are all based on IP (Internet Protocol), roaming from one carrier to another will be more like going from one Internet service provider to another rather than moving from one operator's "walled garden" to another's, he said.

Globalization may well lead to fewer mobile operators in the world, but both partners in the highly profitable Verizon Wireless know a good thing when they see it, in IDC analyst Godfrey Chua's opinion. So neither company is likely to sell its share of the venture, he said.

"Partners often are more willing to let go if things are not going well," Chua said.

The agreement on a network path would make such a deal more likely, said Tad Neeley, a partner at the investment firm Gemini Partners who specializes in wireless. Ultimately, Verizon would be willing to let go of its wireless arm for the right price, he said.

Regardless of actual mergers, mobile users will benefit as Verizon and other operators around the world converge on LTE, according to analyst Jason Kowal of Analysys. The more carriers that use it, the more equipment vendors they'll have to choose from and the lower costs will go. LTE would also attract more developers and allow portability among more networks, he said. By contrast, Verizon's use of CDMA so far has made it hard for subscribers to roam onto GSM networks.

"For anyone who travels internationally, this is a huge issue," Kowal said.

Not that any of this will happen overnight, the analysts warned. It isn't even guaranteed that Verizon will use LTE, according to Gold.

"There's no LTE system up and running anywhere in the world. This is all still on the drawing board," he said.