WASHINGTON—The wireless industry needs consolidation, said one of the titans of the industry on Tuesday.
“The industry does need to be consolidated,” said John Stanton, chief executive officer of Western Wireless Corp. and VoiceStream Wireless Corp. “In contrast to Western, most companies in the industry are not generating free cash flow. The strength of our business—the business of the franchise is different than other companies. Frankly, the pricing environment in urban markets argues for consolidation. Absent spectrum, or the absence of immediately available additional spectrum argues for consolidation.”
Stanton does not see Western being a takeover target since he believes the first mergers will be among the industry’s biggest players.
“I think the consolidation is more likely, at least at first, among the largest companies within the industry. I think eventually my expectation is that many of the regional companies will end up being sold but I love the Western business. Frankly, in my experience at least, we tend to be buyers in times when stock prices are low. We will think about the possibility of selling when the stock prices are high,” said Stanton, not mentioning the fate of VoiceStream, the nation’s fifth-largest wireless carrier.
Stanton was talking to reporters following an appearance before a joint hearing of the Senate Commerce and Indian Affairs Committees where he pleaded for legislative help in granting eligible telecommunications carrier status to competitors on Indian reservations.
Notwithstanding a less-than-stellar quarterly report from Western Wireless recently, Stanton was upbeat with the reporters, speaking many times about Western’s free cash flow.
“We generated about $50 million in free cash flow and that continues to grow. We have five consecutive years, not counting the partial year in 2002, of generating free cash flow. … We have said our goal is to double the free cash flow we made last year and we are on track to do that. In fact we are on track to do better than that,” said Stanton.
Stanton also brushed off concerns about Western’s customer churn.
“The great thing about our business is that it is a recurring revenue business. We started the quarter with 1.1 million customers; we ended the quarter with 1.1 million customers. We did lose a few for the first time and that is unfortunate. We made some mistakes in terms of our pricing strategies during the fourth quarter and paid the price for it during the first quarter, but fundamentally that doesn’t change the inherently strong franchise value that Western has had and continues to have,” said Stanton.
