Investment bankers expect to see more vertical marriages this year withing the wireless industry family, rather than the entrance of non-traditional players into the marketplace.
Mark Kington, managing director of Columbia Capital Corp., said he doesn’t believe utility companies or small cable TV companies will be involved in wireless acquisitions or mergers at this time, although there may be a few isolated transactions.
“Cable companies have such huge capital expenditures ahead of them to upgrade their existing systems that I can’t see them biting off another capital-intensive industry like wireless,” Kington said.
Deals that cross industries probably will transpire between large players, said Brad Busse, senior managing director of the mobile communications and telephone group of Daniels & Associates.
It’s more likely that the U.S. paging industry will continue to consolidate, and medium-size cellular carriers will rationalize their holdings and make vertical moves within their own industry, he said.
“Two paging companies have clearly established themselves, so the next tier now is establishing their long term position. In cellular, a lot of the positioning has already been done and the major players have been sorted out,” Busse said.
Both Kington and Busse expect most of the activity in cellular to be that of positioning for the future. Operators may continue to swap properties to build clusters, refinance their systems or take other measures to address issues on the horizon.
“Some small cellular operators have a lot of options,” Kington said. “If they’ve stayed in the business, they may have become good operators, and good cash flow in some of these markets is really turning on.”
Small operators can choose to remain independent and refinance their system. Or they can sell, take the cash and redeploy it. Or they can merge and take stock in a tax-free transaction.
“It’s a decision about what asset is likely to be worth more in the future,” said Kington.
Rural cellular operators may be positioned well in terms of competition because personal communications services operators are expected to build out in large metropolitan areas first, Busse said.
“There are still a number of operators out there with one, two or three markets. If their operating performance is good, they may not feel pressured to make a decision to sell or merge. But it all depends on their view of the future. If it’s a stand-alone, the owner may feel the value has been maximized, or that (the company) isn’t capitalized to compete with other offerings in the long term,” Busse said.
This year, PCS operators will be occupied with the build-out of their multibillion-dollar nationwide systems. Trading activity in specialized mobile radio isn’t expected to begin until the spectrum auctions are over and federal rules are finalized.
Compared with other industries, wireless continues to have large gains year over year, Kington said. “There are benign market conditions right now. It’s a great time to be in the business for all of us.”
