900lb Gorilla>
From the January 25, 1999 issue of Wireless Week
World Service The Goal
Vodafone, AirTouch Create Global Player
By Bill Menezes
Say hello to a 900-pound gorilla.
The new international wireless company created by Vodafone Group plc's planned $62 billion-plus buyout of AirTouch
Communications Inc. is talking in no uncertain terms about how it plans to throw its newfound weight around. The company
plans to buy more wireless networks worldwide, accelerate growth of existing systems and lean on manufacturers to support a
harmonized third-generation technology standard.
"Ultimately it will enable us to create a world telephone service based upon the next generation of technical standards," said
Chris Gent, CEO of Vodafone and of the merged company. "The scale of our business means we will become partner of
choice to other wireline and wireless carriers. And we expect to become the operator of choice for multinational companies,
who are the biggest spenders on wireless."
Supporting the initial bravado accompanying last week's announcement that Vodafone agreed to buy AirTouch for stock and
cash totaling more than $104 per share (based on the Jan. 20 closing price) were the astounding numbers associated with the
deal.
The merged companies have a market capitalization of $110 billion, with some 23 million proportional customers, wireless
operations in 23 countries plus investments in a score more and annual operating cash flow of nearly $3.4 billion.
By combining their businesses, Vodafone and AirTouch expect to wring $330 million in annual cost savings from their
operations by 2002, as the expected organic growth in world wireless usage boosts their operating cash flow at what they say
will be an annual growth rate of at least 20 percent.
"Five years ago nobody heard of Vodafone and AirTouch," said Sam Ginn, chairman and CEO of AirTouch since its 1993
spinoff from Pacific Telesis Corp. "Now we have positioned this company to take advantage of the revolutionary dynamics of
this industry."
Those dynamics center on the accelerating migration of billions of voice and data minutes from the world's wireline networks to
wireless, which now accounts for only about 5 percent of all telecom traffic. Vodafone AirTouch wants to grab a major chunk
of that by acquiring control of networks in which it now is a minority partner, by buying new properties worldwide and by
broadening its service offerings to attract more big multinational corporate clients.
A crucial element to the long-term plan is the ability to offer voice and advanced data services via standardized 3G networks
and phones worldwide.
A harmonized standard would enable Vodafone AirTouch to exert more leverage on equipment makers by concentrating its
infrastructure purchases for new and upgraded 3G networks instead of having to deal with different manufacturers, each
supplying only a single standard, according to AirTouch Executive Vice President Mohan Giyani.
"There are other interests around manufacturers and patents and other things that impede the [standards] process," Ginn told
financial analysts in London in announcing the deal. "We hope to get beyond those issues and focus on the fact that a
harmonized standard causes the pie to be a whole lot bigger. We think with our combined influence we can press that prospect
in ways we couldn't before."
Analysts seemed to agree with the potential benefits of Vodafone AirTouch's overall strategy. They see not only merger
synergies such as economies of scale in its purchasing and operations, but also the creation of new financial power enabling the
company to acquire more wireless carriers and licenses in existing territories and in largely unexploited regions such as Latin
America and Africa.
"We're calling it the wireless Coca-Cola," said Kevin Roe, wireless analyst for the investment firm ABN-Amro Inc. "It will have
the same touch and feel and brand name everywhere, plus ubiquity of their product. Also, what defines Coca-Cola is its sheer
strength and dominance."
Observers also quickly pointed out that almost overnight the deal changed the competitive landscape of the wireless industry in
other ways.
Immediately feeling the pressure was Bell Atlantic Corp., the thwarted suitor of AirTouch. Bell Atlantic now must either bargain
for a new deal linking the two companies' U.S. networks or face slower, potentially costlier alternatives for cobbling together
the national footprint needed to compete with AT&T, Sprint and SBC Communications.
Conversely, AirTouch also will have to scramble to expand its U.S. coverage if the companies can't reach an agreement over
mutual cooperation and the disposition of their PrimeCo Personal Communications LP partnership.
"We are hopeful we can sit down with Bell Atlantic around the table, understand that the real enemy is AT&T and Sprint and
put together an operating arrangement or joint venture that would allow us to create a domestic footprint across the United
States," Ginn said. "If we can do that, we will be twice the size of AT&T and in position to really drive and improve
performance in the United States."
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