VODAFONE: Deal solves US dilemma
By Richard Waters in New York
Financial Times
How much is Chris Gent prepared to give up to solve Vodafone Airtouch's US dilemma?
That question seems finally to have an answer: the Vodafone chairman is close to a deal that would leave him with national reach in the US, while effectively handing control to a partner, Bell Atlantic.
The path to that decision reflects both a shift that has taken place in the US wireless telephone market, and Mr Gent's own priorities.
Until recently, the US wireless business was a largely local affair, dominated by local brands. Apart from AT&T, the largest carriers have all been linked to local telephone companies, with Airtouch itself a spin-off from Pacific Telesis, the former Baby Bell in California.
The vast bulk of the traffic on the US wireless telephone networks is also still decidedly local in flavour. Some 95 per cent of the calls made in Airtouch's six-county calling area around Los Angeles and San Diego, for instance, are placed to people in the same region.
Roaming - making a call from outside a local calling area, and something that traditionally has been associated with high fees - has been the exception rather than the rule for most users.
A number of things are starting to change that.
For a start, AT&T Wireless has proved the power of a national brand. A single pricing plan for calls made from anywhere in the country, launched last year, has forced other wireless companies to respond with flat-rate pricing of their own. AT&T's initiative has been particularly successful with the high-use customers that all the rivals crave.
With 55 per cent of a merged Bell Atlantic/Airtouch network in the US, Bell Atlantic would be in a position to dictate the future for its own brand. However, there is one potential problem: its name may be too regional to appeal to Airtouch's West Coast customers.
The two should create a new brand to go along with their new company, says Bob Egan, an industry analyst at the Gartner Group.
Besides the power of a single brand, companies such as AT&T stand to reap the benefits of a single network. The roaming agreements through which regional carriers link their networks involve large tolls for calls that are passed from one carrier to another.
With prices falling fast, and two new national companies - Sprint PCS and Nextel - emerging, those tolls are becoming critical.
To compete with AT&T's flat rate of 10 cents a minute, other carriers are having to offer their own single-price deals, leaving them to absorb roaming charges that were once passed on to customers.
Capital spending requirements are also on the rise, with AT&T Wireless due to spend $2bn this year, nearly three times what Airtouch expects to invest in its US network. Merger is one response. |
