The speech that Lowell McAdam delivers in Las Vegas on Tuesday will not steal the headlines.
As the international consumer electronics industry gathers for its annual jamboree in America’s “Sin City”, there will be a scramble to hear from Google (NasdaqGS: GOOG - news) , Facebook (NasdaqGS: FB - news) , Amazon and Microsoft (NasdaqGS: MSFT - news) .
The 58-year-old McAdam does not work for any of the technology companies that are usually credited with reshaping how people are communicating in the early 21st century. Instead, he is chairman and chief executive of Verizon Communications, a $126bn (£79bn) phone company which is barely known outside America.
As anyone who has spent time across the Atlantic knows, Verizon’s low profile outside the US is in sharp contrast to the muscle it has built inside the world’s largest economy.
Although lacking the stardust that comes with being headquartered in Silicon Valley, analysts say the company has played a central role in turning America into a country in which the smartphone is replacing the PC and high-speed internet is fast becoming the DNA of the economy. At the heart of that has been Verizon Wireless, the business that Verizon established in 2000 with Vodafone (LSE: VOD.L - news) and that the two companies still own.
Where Verizon has gone, many technology companies across the globe are likely to follow. It has also played a key role in the battle between Google and Apple (NasdaqGS: AAPL - news) on the type of smartphone consumers use.
“Verizon Wireless is the crown jewel,” says Chris King, an analyst at Stifel Nicolaus. “It has been the best performing of all telecom assets in the US.”
The past decade has seen Verizon Wireless become America’s largest mobile phone company, with almost 100m customers and a market share of nearly 35pc.
But as 2013 dawns, the US juggernaut faces the same challenges as many of its competitors in sustaining its rate of growth as smaller rivals bulk up and ever more of its market own smartphones and tablet computers.
The prospect of new domestic headwinds is sparking speculation among analysts and investors on both sides of the Atlantic.
Firstly, whether this very American company will decide to look beyond the US borders for growth. And, secondly, with the mighty Vodafone grappling with a weak European economy, whether the next couple of years will see Verizon try to execute its long-held ambition of seizing the British company’s 45pc stake in the wireless business they founded.
“The relationship between Vodafone and Verizon is a total soap opera,” explains Robin Bienenstock, an analyst at Sanford Bernstein in London.
“It’s got to be in Verizon’s interests to have a weak Vodafone. [But] the reason you can’t short Vodafone [shares] is that if it gets too weak, it may prompt a move by Verizon for the stake.” She estimates that the whole of Verizon Wireless is worth £135bn.
Even though many believe the challenges facing Verizon will stiffen over the next two years, the company’s latest results were a reminder of the success the wireless business is enjoying. The company added 1.54m new wireless subscribers in the third quarter, beating Wall Street’s forecast of 900,000, and outpacing arch rival AT&T (NYSE: T - news) . Overall profits for the quarter rose 16pc to $1.59bn.
The one significant cloud over the results was a decline in revenues at its Wireline division, the traditional fixed-line phone business it began with when former chief executive, Ivan Seidenberg, started assembling Verizon through a series of deals in the 1990s.
As US regulators continued to liberalise the phone market, the New Yorker engineered the merger of Bell Atlantic and NYNEX in 1997. A combination with GTE, a major phone company with operations in the US as well as South America, followed in 2000, when the name Verizon was formally introduced. Verizon Wireless was established in the same year.
Twelve years on and Seidenberg, who began his career splicing wires on telephone poles in the Bronx district of New York, is credited with establishing the position Verizon now has in the world’s most profitable mobile market.
In 2003, the then chief executive decided to spend more than $20bn to replace much of Verizon’s copper wires that carried voice calls with fibre-optic cable that would be able to carry the internet and television into people’s homes.
“He was a visionary,” Stifel’s King says of Seidenberg. “It was a $20bn to $25bn investment. That’s big money, even for Verizon.”
The investment is the cornerstone of FiOS, the name for the combination of TV and internet service that Verizon sells to just over 16m US customers. It has also strengthened Verizon Wireless’s hand in its fight against AT&T, whose share of mobile phone users in the US is also over 30pc.
The rise of Verizon Wireless is “fundamentally about service, quality and coverage”, says Charles Golvin, who covers Verizon for technology research firm Forrester. “The US is a big place. It’s not dense and small like the UK. What’s important to recognise is that there is a fixed-line piece to Verizon, too. The backbone of its cellular network is its fibre-optic one.” It is the strength of the network and, more recently, its push to expand its higher-speed 4G network, that, over the past five years, has made Verizon central to the multi-billion dollar smartphone battle between Google and Apple.
AT&T scored a major victory in 2007 when it became the exclusive launch partner for the iPhone. After rebuffing Steve Jobs because of the scale of the subsidies and level of control he was demanding, Verizon threw its weight behind handset makers such as Samsung and Motorola that used Google’s Android software to run their phones.
“Verizon was very important in encouraging the adoption of the Android platform,” says Colby Synesael, an analyst at Cowen & Co.
Not usually given to spending marketing dollars on anyone but itself, Apple felt obliged to hold a high-profile launch event at New York’s Lincoln Center when Verizon eventually started selling the iPhone in early 2011.
Apple recognised that distributing the iPhone through Verizon was a critical means of expanding its market share, Golvin argues.
Despite having the red carpet rolled out for it by Apple in Manhattan, it is clear that those in the upper echelons of Verizon felt that their role in the explosion of smartphones was not always acknowledged by the whizkids of Silicon Valley.
“It’s easy for the Silicon Valley companies to look at us and say we have a low IQ (Kuala Lumpur: 5107.KL - news) ,” Seidenberg said in 2010. “I think the world has changed and they see a lot of investment that goes into the networks and developing products and services.”
While Verizon’s investment in its network has encouraged Americans’ rapid embrace of smartphones, the benefits have gone both ways between the company’s New York headquarters and handset makers in Silicon Valley.
In the third quarter, the company sold 3.4m Android-based phones and 3.1m iPhones. What is more, consumers’ increasing appetite for using their phones for activities that make heavy demands on a network such as watching videos and streaming music has seen the US company put up prices.
Customers using the most data have been moved to pricing plans that measure data usage more carefully, which helped push the price of an average monthly account at Verizon to $145.42 by the end of the third quarter.
“The challenge for Verizon is how do you get people to pay for the data they use but do so in a way which makes the customer feel like they are not being gouged,” says Golvin.
The increasing sophistication of smartphones has proved a helpful tailwind for Verizon over the past five years as Americans ditch their old mobiles for the new generation of devices from the likes of Apple and Samsung.
But in a country in which almost 200m phones were sold last year, analysts warn that the risk for Verizon and AT&T is that growth in their domestic market begins to slow.
It is not the only hurdle emerging in Verizon’s backyard. Last quarter saw Sprint and T-Mobile, the country’s third and fourth-largest mobile phone companies, embark on major deals in a bid to steal market share from Verizon and AT&T.
In early October, T-Mobile, which is owned by Deutsche Telekom (Xetra: 555750 - news) , combined with rival MetroPCS Communications (NYSE: PCS - news) . A fortnight later, Japan’s Softbank (Xetra: 891624 - news) paid $20bn for a 70pc stake in Sprint and has promised to accelerate the expansion of the company’s 4G network.
“The biggest challenge to Verizon is the quickly changing competitive landscape,” says Synesael of Coen & Co. “At some point, you’ll see Sprint and T-Mobile move to undercut Verizon and AT&T on data-based usage plans.”
Even as the pool of Americans who do not own a smartphone shrinks and competition increases, McAdam is betting wireless communications will become an ever more central part of how the broader American economy functions in the first half of the 21st century.
The company has established two innovation centres focused on “machine-to-machine” communications, a broad description for a world in which wireless connections start to play a role in medical technology, transport, entertainment systems within cars for example as well as the running of office buildings.
With the purchase in 2011 of cloud computing company Terremark for $1.4bn, Verizon is also trying to expand the range of services it offers to businesses.
But Verizon’s own view that America’s use of wireless networks remains in its infancy, has not stopped speculation that the company will eventually be forced to look overseas for growth.
In contrast to many of America’s biggest companies, Verizon, like AT&T, has focused its efforts over the past 10 years on the world’s largest economy. “If they are looking to buy growth, it will have to come internationally,” says King.
The consensus, at least for now, is that Verizon will stick to the US. Part of the explanation, say analysts, is that possible deals in Europe are unlikely given the parlous state of the Continent’s economy.
The European Central Bank is forecasting a recession for the eurozone this year. It is this economic weakness, though, that could prompt Verizon to try to achieve its long-held ambition of buying Vodafone’s 45pc stake in Verizon Wireless.
Europe’s debt crisis has taken a punishing toll on Vodafone’s operations and helped drive its share price down 15pc last year. Verizon’s climbed 9pc. Vodafone’s first-half results in November (Xetra: A0Z24E - news) underlined the damage, as a £5.9bn writedown of its Italian and Spanish businesses left the chief executive, Vittorio Colao, nursing a first-half loss.
“Colao is in this horrible bind because this would be absolutely the best time to sell it [the stake],” argues Bienenstock.
“Verizon Wireless is at peak growth rates, peak valuation multiples and it’s worth a ton. But Vodafone’s European businesses are shrinking. If they sold the stake, you’d see how poor the European assets are.”
The relationship between the two companies is complicated further because, although Vodafone owns a 45pc stake, it has no control of Verizon Wireless. That has left Verizon’s management to decide both if and when Vodafone receives any dividends from the American venture. After a five-year drought, Vodafone saw multi-billion dollar payments in 2011 and 2012.
“The stake in Verizon is a very valuable asset but, until recently, was not one generating any cash flow for Vodafone,” said Richard Marwood, a fund manager at Axa Investments, which owns Vodafone shares. “Now (Other OTC: NWPN - news) that Verizon Wireless has resumed dividend payments this is less of a problem.”
Vodafone’s board formally reviews the stake in Verizon Wireless twice a year, but Colao has given little indication of wanting to sell the stake. Verizon Wireless is “still going very well”, he told a conference in Barcelona late last year.
Any sale would also bring with it a large tax bill. However, the British company is also aware of how radically things have changed since 2007, when Vodafone considered buying the whole of Verizon.
Five years on, Verizon has the stronger hand in the relationship. It would be a surprise if at some point over the next few years this American behemoth doesn’t make itself known to the wider world. McAdam would be worth listening to on Tuesday, whatever he says.