Verizon Spends $612M for a Future in Cars

Verizon Communications Inc. (NYSE: VZ) said Friday it will spend $612 million to buy Hughes Telematics Inc. in order to improve its connected-car capabilities, a move that will help it take on rivals such as AT&T Inc. (NYSE: T) and Qualcomm Inc. (Nasdaq: QCOM) in this rapidly evolving market.

Telematics refers to the business of tracking commercial vehicles on the move as well as monitoring and communicating with the increasingly complex systems within consumers' cars on the road. Ford Motor Company and other major automotive firms have helped push in-car consumer offerings, while Qualcomm is a big name in fleet telematics.

Hughes gives Verizon more clout on both sides of this market. General Motors uses the Hughes system for roadside assistance under the OnStar brand, and the company has a number of fleet and enterprise offerings to boot.

Verizon also says that Hughes has the potential to reach beyond the automotive machine-to-machine (M2M) sector into other verticals, such as health, asset tracking and home automation.

Under the terms of the deal, Verizon is paying $12 in cash for each Hughes share for a total of $612 million. The buyout is expected to close in the third quarter of this year, after which Hughes will operate as a Verizon subsidiary within its Enterprise Solutions unit. Operations will remain in Georgia.

Why this matters
The deal gives Verizon a big leg-up in the M2M market, a sector that all the major carriers consider a hot and growing property. Total M2M subscriptions in North American are expected to increase from 24.6 million in 2010 to 63.7 million in 2016, with revenues at over $2 billion, according to Pyramid Research .

Analyst firm Berg Insight AB , meanwhile, said recently that among mobile operators that report M2M subscriber statistics, AT&T had the highest figure in the first quarter of 2012, with 13.3 million connections, up 25 percent year-on-year.

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— Dan Jones, Site Editor, Light Reading Mobile