VoiceStream Wireless Corp. Chairman and Chief Executive Officer John Stanton said the carrier is likely to complete its mergers with Omnipoint Corp. and Aerial Communications Inc. in the first quarter as the companies wait for government approvals.
Three parties have lodged protests with the Federal Communications Commission against Omnipoint’s license transfer to VoiceStream. Stanton expects to resolve these issues this year as well as receive Securities and Exchange Commission approvals this month.
“After we receive final SEC approval with final shareholder votes, it will be difficult to complete that transaction by year-end,” Stanton told analysts in a conference call reporting the company’s third-quarter financial results.
The Department of Justice and the FBI have asked the FCC to defer consideration of VoiceStream’s and Omnipoint’s license transfer application until the parties resolve certain national security concerns the DOJ and the FBI have with the merger. Since Hutchison Whampoa Ltd. of Hong Kong will own a large stake in the new company, the two agencies want assurance they would be allowed to wiretap customers under certain circumstances. The DOJ and the FBI raised and resolved the same issues when Vodafone plc purchased AirTouch Communications Inc. earlier this year.
“We’ve had discussions to give the FBI the comfort they need, and we believe they will withdraw, or the FCC will dismiss their protests as soon as we satisfy that requirement,” said Stanton.
Qualcomm Inc. also has filed a petition with the FCC, asking the commission to deny transfer of Omnipoint’s New York license, charging that Omnipoint did not deploy Interim Standard-661 technology enough to meet pioneer’s preference rules. Omnipoint five years ago was granted the New York license for a discount under the now-defunct pioneer’s preference program and says it has met pioneer’s preference requirements.
“We believe [Qualcomm’s] issues are procedurally inappropriate because they are pertinent to the pioneer’s preference license, which is not at issue in the transfer,” said Stanton. “We think they are without merit in that Omnipoint has made substantial use of the technology under the terms of the pioneer’s preference rules.”
National Telecom PCS Inc. petitioned to deny the license transfer, arguing it still holds claims via DCR PCS to some C-block licenses VoiceStream and Omnipoint won through the C-block re-auction. Stanton noted the FCC already has denied previous petitions NatTel has filed on the same issue.
These potential merger setbacks, primarily Qualcomm’s petition, have concerned investors, say stock arbitrageurs. Since early October, the arbitrage stock spread between the two companies has loomed in the $6 range, a symptom of the market’s worry. Stanton said the FCC has assured VoiceStream it will address the issues promptly.
“Rightly or wrongly, the market is worried,” said one arbitrageur. “The wider it spreads, the more the market thinks there is a lower probability that the deal will be completed on existing terms.”
However, mergers with stock spreads as large as VoiceStream’s and Omnipoint’s are not unprecedented. AT&T Corp.’s and Tele-Communications Inc.’s spread was as large as $7 before the deal was consummated in March.
The numbers
VoiceStream said it was the fastest-growing business in the wireless industry as it reached an annualized penetration rate of 2.5 percent. The carrier added 122,500 customers during the third quarter, ending the three-month period with 675,700. It reached $128.1 million in total revenues, compared with $46.2 million in 1998. Net loss grew to $93 million, or 97 cents per share, from $61.5 million, or 64 cents per share, the previous year.
EBITDA (Earnings before interest, taxes, depreciation and amortization) loss for the quarter was $14.2 million, compared with a loss of $27.8 million in third-quarter 1998.
Average revenue per user reached $59.61, up from $57.58 in the second quarter. Average minutes of use per subscriber jumped to 510 throughout the company’s 11 personal communications services markets in the West. VoiceStream attributed the high usage to its “Get More” campaign that requires customers to sign contracts in exchange for a better rate on their monthly access fees. Most customers are signing up for $40 or more plans and using airtime beyond their allotment, said the company.
In related news, VoiceStream announced plans to privately offer about $1 billion equivalent of senior notes and senior discount notes. VoiceStream plans to use the proceeds for working capital and general corporate purposes, including possible future acquisitions and the repayment of $400 million principal amount of its 12-percent senior debentures due 2011.
