Foreign influence

Global interest in the U.S. cellular market is high. And with consolidation expected in the United States and around the world in coming months, U.S. carriers that are owned by foreign companies could be impacted by their partners’ interests and strategies around the globe.

The mergers and acquisitions that frenzied the industry during 1999 and 2000 certainly have quieted during the downturn in the telecom sector. But several factors make consolidation likely in the near future, not just in the United States, but in numerous markets worldwide.

Germany is a good example. Six players won third-generation (3G) licenses there, and two of the license holders have no current infrastructure up and running. The mature German market likely cannot support six competing mobile operators. But if two 3G operators merge, the German regulator would force the merged entity to forfeit one of the licenses and associated spectrum, along with the money paid for the license—about US$7.4 billion. And you thought the U.S. Federal Communications Commission (FCC) could be unreasonable about returning spectrum fees.

Will foreign ownership play a role in the U.S. consolidation that is likely with the lifting of the spectrum cap? Earlier this month, Deutsche Telekom Chairman Ron Sommer made it clear that T-Mobile, DT’s mobile division, considers VoiceStream a key part of its holdings around the world. “T-Mobile is also the only transatlantic operator with GSM as its standard, and we’re seeing GSM make a real breakthrough in the U.S,” he told a press colloquium in Berlin. “It must be recognized that we took a risk buying into the U.S., but we intend to use our influence to make GSM a pan-U.S. standard.”

That does not sound like a guy who is ready to take on a CDMA partner any time soon.

NTT DoCoMo holds only 16 percent of AT&T Wireless, but the Japanese carrier still shelled out US$9.8 billion for that stake, and any major decisions—like a merger—will no doubt require DoCoMo’s input.

How will foreign ownership affect Verizon, in which Vodafone holds a 45-percent stake, during a wave of consolidation? Even with Vodafone’s strong W-CDMA backing, the U.S. carrier opted to upgrade its network with cdma2000 technology. But Vodafone has never been known to tread lightly in the mergers and acquisitions arena. Just ask Mannesman, the company Vodafone acquired in a US$128 billion hostile takeover in 2000.

Cannes, France, is the host of this week’s annual 3GSM World Congress, the world’s largest GSM-focused trade show. Last year’s show was fairly subdued due to the gloomy climate beginning to settle around the mobile industry—a climate that continued to worsen throughout 2001 and into the new year. This year’s event promises to be an interesting mix of optimism about the promise of next-generation services and potential revenues and caution due to the continued negative financial standing the industry can’t seem to shake.

The next round of consolidation will likely be played out in a much different arena than the last.

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