Verizon Wireless, the mobile phone services arm of US telecom company Verizon Communications, has announced that the company will start paying dividends to UK wireless carrier Vodafone from 2012.
Vodafone, which owns a 45 per cent stake in the company, has not received dividends from Verizon Wireless since 2005 when Verizon decided it should first clear out its existing debts before paying dividends to shareholders.
John Killian, the finance director of Verizon Communications, told Bloomberg that the company would start to paying dividends after the company's debts have been paid off at the end of 2011.
When Verizon Wireless released its end-of-year financial report in May, Vodafone said the company's debt stood at $20 billion. It had borrowed heavily to acquire mobile operator Alltel.
Vodafone stated that Verizon Wireless was generating $1.5 billion in revenue each month, so would be able to clear the debt before 2012.
Financial experts believe that this is the first time that a telecom company has set a definite date to resume dividend payment.
Robert Bienenstock of London-based market analyst Sandford C Bernstein said: "This would have a tranformative effect on Vodafone, increasing free cash flow by over 30 per cent.”