Wireless.NewsFactor -- What Is the Magic Number of Wireless Carriers?
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What Is the Magic Number of Wireless Carriers?
Wed Jun 19, 1:35 PM ET
Brian McDonough, Wireless.NewsFactor.com
In the next few years, the current six carriers in the U.S. wireless industry
most likely will consolidate, and the effect on consumers probably will be
small, but positive.
Giga Group senior research fellow Lisa Pierce
says it is unlikely the number will dwindle to as few as two, but three is
possible. "I'm hoping for four," she told Wireless NewsFactor. "We need three
for there to be real competition, and four would kind of keep everything more
off-balance."
Off-balance, she says, as in having to work hard to keep consumers happy.
"From the customer perspective, four is the minimally acceptable carrier
number."
In the coming years, Frost & Sullivan analyst Kshitij Moghe agrees, strategic
consolidation will be the order of the day, "leaving the market with three to four
large national carriers by the 2004 to 2005 timeframe." No way will six survive unchanged, he told Wireless
NewsFactor. "This number is twice what the market can support today."
Choosing Sides
A driving force behind the move toward consolidation, Openwave director of technology Kevin Wagner
says, is the rollout of next-generation data services, which his company enables for many leading carriers in
the United States and abroad. With voice revenues plateauing, carriers need to roll out new services, and that
is expensive. Also, there is less time to rest on laurels -- the rate of technological innovation is increasing, he
says.
"To get from 2G to 2.5G took 10 years, and we're already looking at 3G in the next few years," he told
Wireless NewsFactor. "That's a pretty large capital deployment for someone looking to cover big areas, and
the time between writing those big checks is decreasing."
Having five or six carriers all trying to run next-generation networks across the nation is a lot more
expensive than having only three or four companies do it.
"I think [consolidation is] inevitable, at some point," Wagner said. "Technology-wise and business-wise, it
just makes sense."
Come Together
A strong sign, not of corporate consolidation, but of a recognition that sharing the load is valuable, came in
January, when Cingular and AT&T Wireless ( NYSE: AWE - news) partnered to shoulder the burden of
deploying GPRS (general packet radio service) networks in the Midwest.
Wagner says it makes sense for companies rolling out networks on the same standards to look at joint
deployments or roaming agreements to cut costs.
Pierce says actual consolidation probably will follow technology lines, with GSM/GPRS (global system for
mobile communication/GPRS) carriers finding easier and more attractive merging possibilities with each
other than with the CDMA ( news - web sites)-committed (code division multiple access) carriers, and vice
versa.
"Sort of like roaming agreements," Pierce says. "They'll learn to make love, not war."
Wide Spectrum
John Lodenius, senior vice president of marketing for CDMA champion Qualcomm ( Nasdaq: QCOM -
news), would not predict how much the field is likely to shrink in North America. Echoing Openwave's
Wagner, Lodenius said Qualcomm is ready to serve whoever is left -- CDMA or not.
"We're developing chips with both CDMA 1x and GPRS in the same chip. From a technolgy perspective, we
can support any combination of carriers," Lodenius told Wireless NewsFactor. "Whatever consolidation the
carriers end up in, we'll have solutions."
While fiscal and practical needs may drive the urge to consolidate, the government is providing the ability to
do so. By 2003, the FCC ( news - web sites) will have removed the spectrum caps that have kept carriers
from growing too big in certain markets. Without that limitation, it will be easier for carriers to merge into
ever-bigger networks, says Frost & Sullivan's Moghe.
"The elimination of spectrum caps is a very good thing, leaving carriers with more options and room for
rolling out high-end, enhanced services," he says. "And, yes, the market will lead to consolidation."
What Consolidation?
For consumers, losing a couple of carriers might not make much difference, according to Giga's Pierce.
"Right now, the No. 1 factor in picking a carrier is coverage," she explained, "and there's usually not more
than three providers with strong coverage in any one market."
So the idea that consumers ever had six carriers to choose from is pretty much an illusion. However, if
consolidation saves carriers money and lets them roll out services faster -- and if not, why would they
consolidate? -- consumers may benefit from a shrinking field.
Larger, merged companies with bigger subscriber bases will find it more affordable to expand and upgrade
networks, resulting in savings they may pass on to their customers. And what is more affordable can often
be done more quickly.
Openwave's Wagner agrees, noting that it is not a matter of getting the services on the network, but getting
the networks to the people, that is the real challenge. But he makes a cautionary observation: Networks might
be rolling out faster than the public is prepared for, already, because next-gen handsets are not available in
high quantity and at reasonable prices.
"Traditionally, the network has preceded the handset by a significant amount of time," he noted. Thus, the
time advantage of faster rollouts may be lost as masses of consumers wait for more and cheaper phone
choices.
Waiting for First Moves
So consolidation is widely expected, but who is going to be bought? Who will merge with whom? That is the
part that no one is sure of. Pierce says she has heard rumors of a Cingular-AT&T Wireless alliance, but has
seen no sign that the talk is anything more than idle speculation.
"Last fall I predicted that Cingular and Voicestream would merge," Pierce said. Needless to say, that has not
happened. "I fail to understand how Voicestream, with its small market share, can continue to provide
services."
The other relatively small carrier, Nextel ( Nasdaq: NXTL - news), also should be headed for change, she
said. "They've got a single-digit market share, a business-customer base, and they need to upgrade their
technology."
Next-Gen Puzzle
Of course, no carrier has announced anything remotely indicative of buyout or merger ( news - web sites)
plans, and none is likely to, unless and until it is ready to move.
"There is much speculation, and only time will tell what happens," said Andrea Linskey, Verizon's executive
director of communications for data services. "From Verizon's perspective, we feel we are well positioned in
the industry, and there is no gun to our heads to merge."
It is not an easy game to play -- predicting who will go where, Pierce says, because there are too many
factors. Customer acquisition and voice revenues have peaked, churn is at 20 to 30 percent, and data
services and next-generation networks are still around the corner. "There are so many pieces to the puzzle."
A lot of pieces, yes. But one thing seems sure: In the next couple of years, there will be fewer of them.
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