In a rapidly consolidating wireless industry, the list of available cellular carriers last week got shorter
by two.
After entertaining bids from at least two suitors, including Bell Atlantic Corp., AirTouch Communications
Inc. opted to tie up with Britain’s Vodafone Group plc in a deal valued at about $62 billion. And cable company
Comcast Corp. agreed to sell its wholly owned subsidiary, Comcast Cellular Corp., to SBC Communications Inc. for
about $1.7 billion, including $1.3 billion in debt.
Comcast President Brian L. Roberts said the sale of its cellular
assets is a recognition of a trend in the wireless industry toward national and global competitors. Comcast now will
focus on its core cable and content businesses.
Talks between AirTouch and Bell Atlantic broke down Jan. 15, after
Vodafone reportedly sweetened its offer for the nation’s largest independent cellular carrier. Bell Atlantic almost
immediately filed a lawsuit against AirTouch seeking to dissolve the companies’ TomCom joint venture formed in 1994
to create a nationally competitive brand and a seamless national wireless network.
Part of the TomCom agreement
was a noncompete clause that prevented any of the parties from competing in the same markets. In its lawsuit, Bell
Atlantic claims the TomCom venture essentially failed and should now be dissolved, allowing the company to enter
AirTouch’s markets and more importantly solve the overlap problems resulting from its pending merger with GTE
Corp.
Despite what appears to be some bitterness on Bell Atlantic’s part, there is broad agreement the company
eventually will form an agreement with the new Vodafone AirTouch, which will give the pair nationwide scope in the
United States. Sam Ginn, chairman and chief executive officer at AirTouch, clearly was interested in bringing the two
companies together.
“We are hopeful that we will be able to sit down with Bell Atlantic, understanding that
the real enemy is AT&T and Sprint, and put together an operational arrangement or joint venture for a national
footprint in the United States,” he said.
Chris Gent, CEO of Vodafone, also expressed his commitment to
filling out a national footprint in the United States, saying the company either would try to work with Bell Atlantic,
acquire other systems or buy frequency and build out systems in areas AirTouch doesn’t currently serve. It appears
likely the combined company also will try to bolster its European position by increasing some of its minority stakes in
certain carriers to majority stakes and potentially offering pan-European pricing plans.
Bell Atlantic spokesman Jim
Gerace would not say whether Bell Atlantic and Vodafone AirTouch are in negotiations, but he noted the companies
are in continual contact via their joint interest in personal communications services provider PrimeCo Personal
Communications L.P.
“When Bell Atlantic gets over its short-term disappointment, it will realize that
practically and pragmatically there are not many better partners for them than AirTouch,” said David Kerr, vice
president of wireless communications at Strategy Analytics.
The driving force behind the consolidation gripping the
wireless industry is the perceived need for a nationwide footprint. Analysts say AT&T Wireless Services Inc. changed
the competitive landscape last year when it introduced its Digital One Rate plan that eliminates roaming fees and long-
distance charges. In order to be effective competitors, other carriers have felt the pressure to bolster the size of their
networks, say analysts.
Size also brings the benefits of economies of scale and access to capital.
Herschel
Shosteck, president of Herschel Shosteck Associates Ltd., takes it one step further to predict the industry will
consolidate into a handful of global carriers.
“It’s changing from a little boy’s game to a big boy’s
game,” said Shosteck. “In five years, you’re going to need a minimum of $100 billion to
play.”
Most analysts expect consolidation to continue during the next couple of years, although some say
another blockbuster transaction is difficult to imagine. The consolidation most likely will involve second-tier players,
they say.
BellSouth Corp. remains the largest question mark.
“BellSouth is standing still,” said
Strategy Analytics’ Kerr. “They are the remaining giant in the industry.
“They are an excellently run
company, but they run the risk of becoming stranded on an island of their own franchises,” said Kerr.
Jeff
Battcher, a spokesman for BellSouth, said the company isn’t interested in consolidating just for the sake of
consolidating. He said the company has been successful at negotiating competitive roaming arrangements, giving
customers the ability to use their wireless phones anywhere in the country without having to acquire the networks to do
it.
While other carriers are scrambling to fill in all the holes in their service area so they can be the next nationwide
player, some analysts say national scope is less important than it appears.
Larry Swasey, senior wireless analyst at
Allied Business Intelligence, said carriers that are scrambling to gain size in order to attract the coast-to-coast business
traveler may be overlooking an extremely lucrative market segment-the local customer.
“Simply because a
wireless carrier cannot offer a ‘one price’ coast-to-coast wireless plan that includes roaming and long-distance charges,
it does not mean the carrier cannot be very competitive,” said Swasey. “The average person, who works
and lives locally or who simply does not travel often, is still a vastly underserved market.”
Bell Atlantic’s
Gerace confirmed 70 percent of its customers never roam, and of the 30 percent that do roam, nearly all roam within
Bell Atlantic’s Northeastern region. BellSouth’s Battcher said about three-quarters of its customers never
roam.
“The larger regional players have a great opportunity to pursue the local market rather than trying to
fight for the same customers,” said ABI’s Swasey, who noted both Bell Atlantic and AirTouch have large enough
subscriber bases to be competitive without a national footprint.
Strategy Analytics’ Kerr also said national scope is
not a critical requirement, with only about 2 or 3 percent of the population truly taking advantage of the benefits of a
national footprint.
Nevertheless, carriers are pushing for national and international dominance. Patricia Martin, an
analyst at Decision Resources Inc., predicts the Vodafone/AirTouch deal could hasten consolidation in Europe as
well.
“The trend in Europe and the United States for U.S.- and European-wide coverage is unstoppable,”
she said. “Just as AT&T threw down the gauntlet with its One Rate plan, Vodafone and AirTouch threw down a
challenge, and the same thing that is happening in the United States will happen in Europe.”
