Vodafone CEO: Verizon-Alltel hookup 'very good'
The CEO of Vodafone, which has a 45% stake in Verizon Wireless, cheered the $28 billion merger plan, citing strong growth prospects.
NEW YORK (Fortune) -- Just minutes before Verizon Wireless formally announced it would acquire rival Alltel for $28 billion, Vodafone Chief Executive Arun Sarin told Fortune that he liked the growth prospects of a Verizon-Alltel deal.
"Are you kidding me?" Sarin said, smiling widely. "We think a hypothetical deal is very good." Sarin has more than a passing interest in the latest acquisition in the wireless sector.
Verizon Wireless, the second-largest wireless operator in the U.S., is a joint venture of Vodafone, which owns a 45% stake, and Verizon Communications (VZ, Fortune 500). AT&T (T, Fortune 500) is the No. 1 wireless operator.
Sarin was in New York meeting with analysts to discuss Vodafone (VOD)'s most recent earnings. The global mobile operator reported a full-year profit of more than $13 billion, reversing a year-ago loss, and revenue climbed 14% to nearly $70 billion thanks to the company's operations in emerging markets such as India, China and Turkey.
I asked Sarin, who is stepping down as CEO of Vodafone, whether Verizon Wireless should be following Vodafone's lead, making more investments in fast-growing economies instead of essentially doubling down on the U.S. with its Alltel deal.
"As an industry, in the U.S. we are at $150 billion and growing at 10%," he said. "In Europe, we are growing 2%, okay? So we see 10% growth and we say, 'Give me more of that.' "
Sarin acknowledged that Verizon Wireless' ability to expand internationally would be greatly enhanced once it and other companies started moving to so-called 4G wireless technologies.
Today, Verizon is one of only a handful of large operators with a CDMA network. (Sprint (S, Fortune 500) and Alltel also operate on CDMA.) In contrast Vodafone's and AT&T's wireless system is based on the GSM standard that is popular throughout much of the rest of the world.
Verizon's CDMA platform makes it challenging to acquire international operators that operate on GSM-based systems: It would gain few economies of scale because the handsets, telecom gear and other purchases wouldn't always be compatible across the competing networks.
But the world's carriers are all migrating to a similar set of standards for 4G, a standard called "LTE," for "long-term evolution." Once that migration occurs, maybe in another three to five years, GSM carriers and CDMA carriers could more easily combine and gain cost savings, because they could use the same equipment and handsets.
"We'll be LTE, Verizon will be LTE, China Mobile will be LTE," Sarin said. Once that happens, he suggests, the seemingly oddball combination of Verizon and Vodafone in the U.S. may start to make more sense. (Today, for example, Vodafone customers can't seamlessly "roam" onto the Verizon network in the U.S. - unless they have some sort of tricked out "world phone.")
But once both companies are operating on the same global standard, roaming will be easier, and shared equipment purchases will accelerate. Sarin says they already are able to do some joint buying.
"You might look at the period from 2000 to 2010 and say, yes, that was a big of an odd thumb sticking out" in the Vodafone portfolio. "But if you look at 2010 - 2020 when we're all on 4g, it isn't going to be odd at all." 
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