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The world's largest mobile operator Vodafone Group has given its strongest hint yet that it is poised to launch a $30 billion-plus offer for troubled US rival AT&T Wireless. A bid would be extremely expensive, but it would provide an opportunity for Vodafone to build its own brand presence in the US.

In an announcement on Monday, Vodafone said it "continues to monitor developments in the US market, and is exploring whether a potential transaction with AT&T Wireless is in the interests of its shareholders."

On the whole, Vodafone's shareholders remain skeptical, and there is concern that Vodafone will dilute shareholder value by issuing new shares. One way to convince reluctant shareholders would be to acquire AT&T Wireless by issuing new shares, but return some of the cash it would make by selling Verizon Wireless, the leading US mobile operator in which it holds a 45% stake.

Getting a good "exit price" for Vodafone's Verizon stake would be essential for the management to reassure shareholders of the sense of giving up a sizeable stake in a market leader, and downgrading to a fourth-placed operator. Vodafone's Verizon stake is thought to be worth between $20 billion and $23 billion.

Vodafone shareholders do accept that some time in the future Vodafone needs to gain 100% control of a mobile operator in the US, but they question whether it should be AT&T Wireless. The network of AT&T Wireless would take a lot of investment to match the standard expected by Vodafone. However, it would allow Vodafone to extend its brand name to the US.

Both companies have similar technology - they both operate the GSM network. This is in marked contrast to Verizon Wireless, which operates the CDMA standard.

There is some speculation that this is all a double bluff on Vodafone's part to start a bidding war that would force rival bidders such as Cingular and NTT DoCoMo to pay more for the operator. Other suggest that Vodafone should use its financial and market muscle and attempt to gain full control of Verizon Wireless.

The US market is ripe for consolidation, and most analysts agree that six operators is simply too many for the market. If Cingular were to win control of AT&T Wireless, it would be able to merge both its networks and would be able to deliver significant cost savings.

Source: ComputerWire/Datamonitor

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