A Widening World for Wireless
Battle Over AirTouch Could Create 4th Nationwide Carrier
By Mike Mills
Washington Post Staff Writer
Friday, January 8, 1999; Page F01
In the early 1980s, when the federal government first began handing out
cellular telephone licenses, there was long debate over how much territory
each license would cover. AT&T Corp. wanted a nationwide license.
Smaller companies argued that competition would be better served if all
the licenses covered only individual towns.
The small-is-better camp won that round. But today, more than a decade
and a half later, three companies -- AT&T, Sprint PCS and Nextel
Communications Corp. -- have assembled coast-to-coast networks,
largely by buying up small companies.
The question now: Will there be a fourth nationwide carrier? The current
bidding war over AirTouch Communications Inc. could answer that
question. However it ends, the contest will show the telephone industry's
belief that wireless is where its future lies and its systems need to be grand
in scope.
Bell Atlantic Corp. of New York began the bidding, making an offer
valued at about $45 billion. The company is already a major East Coast
cellular provider; taking in AirTouch would give it nearly national reach.
Britain's Vodaphone Group PLC likes AirTouch's holdings in Europe and
is offering upwards of $90 a share, or about $54 billion, for the company,
according to British press reports. Such a purchase would give it a major
piece of the U.S. market; it would also allow it to assemble a Europe-wide
network by combining its systems with ones AirTouch owns there.
And though it has no plans to make an offer in the immediate future, MCI
WorldCom Inc. also is actively interested, company sources said. MCI
WorldCom is the only major U.S. telecommunications player that has been
sitting out the wireless phone boom. Other bidders may yet emerge,
including British Telecommunications PLC and Germany's Mannesmann
AG.
In part, the bidding is simply a wireless extension of the merger-mania that
gripped the wired side of the business from 1996 to 1998, when three Bell
companies mergers were announced: GTE Corp. teamed up with Bell
Atlantic, WorldCom bought MCI and AT&T got engaged to cable TV
giant Tele-Communications Inc.
The goal was national systems, one-stop shopping and economies of scale.
Last spring, the dynamic shifted to the wireless market, when AT&T,
Sprint and Nextel showed the value of nationwide wireless networks by
offering customers a monthly flat price for all their local and long-distance
wireless calling.
Companies such as Bell Atlantic that don't own nationwide radio towers
and switches, and whose customers must therefore "roam" on others'
systems while traveling, found it too expensive to match AT&T's offering.
AT&T's Digital One rate programs have proven so popular, the company
has taken to urging customers to stop using their wired telephones -- a
message that strikes fear in the hearts of the regional Bell companies.
"The Digital One rate has exceeded even AT&T's expectations," said Kent
Olson, a wireless consultant for District-based Strategis Group, a market
research firm. "It's been tremendously successful in keeping higher-end
customers on AT&T and increasing calling volumes for middle-range
customers."
The emergence of MCI WorldCom as a potential buyer of AirTouch is
likely to raise the ultimate purchase price, but several analysts questioned
whether it would be the right move for the newly merged company.
Before WorldCom bought MCI late last year, MCI had made repeated
failed attempts to enter the wireless business. It sat out the auctions for
new digital "PCS" (personal communications services) licenses in 1994,
and backed away from a deal to invest $1.4 billion for a 17 percent stake
in Nextel. MCI was unhappy with Nextel's technology at the time.
The company opted in 1995 to pay $190 million for Nationwide Cellular
Services Inc., a large wireless wholesale company that leases cellular
capacity from other carriers and resells it. But in view of low profit margins
in the resale business it has stopped marketing cellular to consumers.
Since the merger, MCI has been divided internally on the wireless issue. In
December Chairman Bert Roberts said in London that the company was
looking into buying a cellular service company, while on the same day chief
executive Bernard J. Ebbers said in Washington that he had no interest in
such a move.
AT&T's success in getting consumers to use wireless phones for all their
calling -- which shifts traffic away from voice networks -- combined with
the possibility of AirTouch being snapped up by a rival, may be changing
Ebbers's mind.
"He's been waiting for the wireless market to get to a certain maturity
level," said one source close to Ebbers. "With more voice traffic moving
onto wireless, and prices coming down, you have to think about that."
Still, buying AirTouch -- a largely consumer-oriented cellular company --
would seem to run counter to MCI WorldCom's self-described "jihad" to
serve the high-end business market with mostly data services.
"An MCI WorldCom deal with AirTouch makes the least sense," said
Mark Lowenstein of the Boston-based Yankee Group. "Bernie Ebbers
has said repeatedly that it's not his core business."
If MCI WorldCom so badly wants into the wireless world, Lowenstein
said, it should take another look at Nextel, which also aims to serve mostly
business customers nationwide.
MCI and Nextel have indeed been talking about re-marriage for the past
several months, sources from those companies confirmed.
MCI WorldCom lost $3.25 to close at $75.12 1/2 on the Nasdaq Stock
Market yesterday, while AirTouch gained $2.12 1/2 to close at $82 on the
New York Stock Exchange. Bell Atlantic was up 12 1/2 cents to close at
$56.
Making the Calls
Cellular and personal communications systems subscribers in the U.S.
1997: 53.4 million
2002: 109.6 million
Measuring the Markets
Potential number of customers* In millions
AT&T Wireless Services Inc. 242.9
Sprint PCS (including SprintCom Inc.) 234.0
Nextel Communications 165.3
AirTouch Communications 64.3
Bell Atlantic Mobile 56.9
PrimeCo Personal Communications 56.1
*Within each company's market area
SOURCES: Wireless Week research, Cellular Telecommunications
Industry Association, FCC, Strategis Group Inc.
© Copyright 1999 The Washington Post Company
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