After years of claiming there are too many competitors in the wireless industry for anyone to make a profit, the federal government finally pulled off the leash, lifting spectrum-cap rules prohibiting any one carrier from monopolizing spectrum capacity in any one market.
But since the cap was completely lifted at the beginning of this year, analysts have noted the expected rush to whittle down the number of wireless competitors has been hijacked by a slumbering economy and creative arrangements by operators that have allowed many to enter new markets or solidify their spectrum positions without the billions of dollars needed to acquire a competitor.
“We would have surely seen some movement if the markets were more favorable,” said Iain Gillott, founder and principal analyst at iGillottResearch Inc.
Of the possible merger scenarios, many analysts looked at some sort of deal between the nation’s three GSM operators as the most likely because those players have the most to gain from consolidation. Strict GSM operator T-Mobile USA Inc. could use a partner to help build out its extensive spectrum portfolio; AT&T Wireless Services Inc. could use a partner to bolster its network overlay plans; and Cingular Wireless L.L.C. could need both help for its network overlay plans and additional spectrum to fill in coverage holes.
Instead of moving ahead with consolidation plans, the North American GSM community-which has been growing due to a number of rural operators announcing overlay plans-has hammered out extensive roaming agreements as a stop-gap measure.
“The wireless carriers figure if they can’t consolidate, they can do some agreements that will help in the mean time,” Gillott explained. “The roaming agreements are more of a tactical, operational play than a strategic, financial move.”
Andrew Cole, wireless practice leader at consulting firm Adventis Corp., agreed, noting any sort of arrangement that can help the carriers compete makes sense in lieu of an acquisition.
“At this point, any little bit helps,” Cole said.
This year alone AT&T Wireless announced a networkwide deal with Cingular Wireless, allowing both carriers to use each other’s GSM networks through the end of 2006 with what they termed “very attractive roaming rates.” The two carriers also announced plans to add another 1,000 miles of highway coverage to their Roadrunner joint venture, bringing the project’s total GSM coverage to 4,000 highway miles when it’s completed by the end of 2004.
AT&T Wireless also signed roaming agreements with network partners Edge Wireless L.L.C., which is planning to launch GSM service covering 960,000 pops in portions of Oregon, Northern California, Idaho and Wyoming, and Cincinnati Bell Wireless, which plans to launch GSM service covering 2.2 million pops in the greater Cincinnati and Dayton, Ohio, area.
AT&T Wireless then signed an agreement with T-Mobile USA allowing AT&T Wireless customers access to the T-Mobile USA 1.9 GHz network covering approximately 3,000 highway miles and 12.1 million pops. And T-Mobile USA customers can access AT&T Wireless’ 1.9 GHz network along more than 2,500 highway miles and covering 10.9 million pops.
Following its AT&T Wireless agreement, T-Mobile USA announced a deal with Western Wireless Corp. and Cingular Wireless that will provide both T-Mobile USA and Cingular Wireless customers an additional 5,500 miles of highway coverage and blanket approximately 4 million pops across much of Western Wireless’ coverage area.
Despite the deals, many analysts still expect consolidation to occur, though few are putting any timetable on when a deal might be announced.
“I still expect a deal to happen and would have thought a deal would have already taken place,” said Michael Doherty, senior analyst at Ovum. “But at this point I couldn’t put a timeframe on when a deal will be announced.”
Doherty explained that even though a lot of the players that are expected to be involved in any GSM merger scenarios have also been involved in most of the roaming agreements, he does not see a link between the two.
“I don’t see a direct connection between roaming agreements and mergers,” Doherty said.
Instead, Doherty said most carriers will continue to segment their customer bases, including targeting the youth and business markets, and then look at what they are missing before making any acquisitions.
Gillott added that while he also does not see any connections between roaming agreements and possible consolidation, the fact that the carriers are keeping in contact could make a future deal easier to pull off.
“The roaming agreements may make it easier to do a deal, but not enough to say now that it’s a done deal,” Gillott added.
