re: Andy SuperPatriot on US Mergers
Note comment on upcoming 3GAmericas presentation and Pete Rysavy's whitepaper.
Later this week expect to hear from the 3GAmericas organization about a white paper being promoted as showing that there is near parity between GSM voice capacity and CDMA2000 1x capacity. I won't comment on this paper or the Webcast at the moment, but you can be sure I'll have something to say about it next week.
Message 17721728
>> Merger Rumors
Andrew M. Seybold
Wireless Outlook Newsletter
15 July 2002
Trying to sort it all out and figure out what the FCC and the Department of Justice (DOJ) will permit in the way of mega-mergers may keep the press occupied, but investors could get whiplash trying to keep track of all of the reports and "inside scoops." We will watch this space closely and when one or more rumor becomes fact we will tell you about it and its importance. In the meantime, these reports will provide entertainment for all!
Mega-Merger Mega Rumors
We started out last week with the rumor that AT&T Wireless and VoiceStream are in merger talks. Such a merger would make the combined company the number-two carrier in terms of customers and would combine AT&T's 850-MHz and 1900-MHz spectrum with VoiceStream's 1900-MHz spectrum. Meanwhile, Cingular Wireless would move from the number-two spot to number three and would have to deal with the new entity for roaming and network sharing agreements in order to retain its "nationwide" voice and data offerings.
Next up was the comment from Mr. Carter, CEO, that Cingular Wireless was interested in a merger with VoiceStream. This merger would keep it in the number-two position and give Cingular much-needed spectrum on the East Coast. It would also eliminate the need for Cingular to have to overlay GSM/GPRS on many of its systems in cities already served by VoiceStream.
Then analysts weighed in with their assessments of who should merge with whom, and there were more rumors that Cingular and AT&T Wireless were in merger talks. This merger would make AT&T Wireless the largest U.S. carrier--a position I'm sure it would like to regain. There were even rumors that all three of these networks were talking about a mega merger. This last rumor I discount completely even though I think it would be a great move. I don't believe for a minute that the FCC or DOJ would permit it, even with the removal of the spectrum cap.
Of the 70 questions I answered on my monthly Internet Wireless Week Big Talk on July 11, more than 40% were about merger rumors. At the moment, I believe that they are all simply rumors. Even if there are ongoing discussions between the companies, I don't think any engagement or wedding dates have been set. There are many unanswered questions about what will be permitted in the way of mergers, and the value of such deals will depend on what spectrum might be made available by the feds, the status of the NextWave spectrum court case and the interest level of other players such as AOL-Time Warner and Microsoft in the spectrum and in partnering with the existing players.
If the feds "find" some spectrum in the 1700-MHz, 2100-MHz or some other band to auction between now and the end of the spectrum cap on December 31, the need to merge might not be as great. If the NextWave spectrum comes back on the market, that, too, might affect who needs to merge or buy whom. If the 700-MHz auctions are finalized and firm dates are set, this could also impact the status of some of the rumored mergers. Then there are the reports such as those we are getting from Deutsche Telecom that it wants to 1) sell VoiceStream, 2) hang on to it or 3) merge it with another carrier. Any speculation just that: speculation.
Most interesting to me is that the greatest need to merge, acquire more spectrum or share networks is among carriers in the TDMA/GSM/GPRS/EDGE/UMTS community. All of the merger rumors center around the three wireless operators in most need of spectrum (AT&T Wireless, Cingular Wireless, and to a lesser extent, VoiceStream.) I would be very surprised if any of these rumors, even if based on inside information, are indicative of how things will turn out when the dust settles. Verizon and Sprint PCS are in pretty good shape from a spectrum point of view, even though both bid on NextWave spectrum, and I really don't expect to see them engaged in talks. A full Sprint/Verizon merger would negate the break-up of AT&T Wireless and I don't see this as a possibility under the current political climate.
Later this week expect to hear from the 3GAmericas organization about a white paper being promoted as showing that there is near parity between GSM voice capacity and CDMA2000 1x capacity. I won't comment on this paper or the Webcast at the moment, but you can be sure I'll have something to say about it next week.
We will be hearing rumor after rumor for the next six months but until something is actually announced, that is all they are: rumors. I believe there are some surprises coming our way. The entire telecom sector is suffering and wireless is out of vogue even though it is the future of our mobile society. Technologies continue to be late to market, wireless companies are making the same mistakes over and over again and now there are reports that only 6% of the American wireless public is interested in wireless data. All of these factors might influence the "need" to merge.
What about foreign ownership increases? NTT DoCoMo holds shares in AT&T Wireless, Vodafone holds shares in Verizon and Deutsche Telecom owns VoiceStream. If the spectrum cap had been relaxed and these merger discussions were going on a couple of years ago, I would have been inclined to speculate that several international players would join in. But since many European super-carriers are no longer flush with money (to say the least) and Europe is seeing some network contractions of its own, I doubt there will be additional foreign investment, at least by carriers, as our merger-mating game unfolds.
There are several important points that could affect both the timing and the value of any mergers during the last half of this year prior to the lifting of the spectrum cap. Many of these mergers need to happen sooner rather than later to make sense. Carriers that are purportedly in talks are duplicating efforts spending many millions or billions changing technologies, adding capabilities and moving to 2.5 and 3G in the same cities. They need to merge now, before the coffers are drained.
The analyst community seems to be pairing companies with like technologies in their reporting of who will merge with whom. While this is probably a sensible way to look at things, there is no guarantee this is how it will happen. Wireless carriers have already traded out their technologies in cities where they more recently acquired a license. Two that come to mind are AT&T Wireless in San Diego and Cingular in the Chicago area. Trading out a technology may cost a lot, but it could cost more to acquire spectrum in an auction and wait until spectrum is available, so I'm not ruling anything out.
I believe that almost every wireless operator is talking to every other wireless operator--it only makes sense. So I'm not getting excited about any of the rumors or "inside" reports. I will wait patiently and see who officially announces what, in what time frame and how it plays out with the DOJ and the FCC. And speaking of the FCC, how do you figure these folks out? First they vote to get rid of the spectrum cap and then they consider "rules" about who will be permitted to merge with whom. This makes no sense to me. The DOJ will certainly look at potential mergers from the perspective of "protecting" the consumer, so why should the FCC worry about its own "rules?" Mr. Powell has repeatedly stated that the best thing the FCC can do is to get out of the way" of free enterprise. I hope he means it.
What's wrong with having fewer, bigger wireless operators? I don't think many smaller companies are in jeopardy of being bought, at least not for their spectrum, which is generally not in the top 50 markets. And I don't believe that many of the top 100 markets can support five, six or seven wireless carriers. If it were up to me, I would opt for three or four at the outside and allow them to grow and to have sufficient spectrum to complete their technology build-outs. Then they could sign up enough subscribers to afford to build out better in-building, suburban and even rural coverage (perhaps with the smaller players).
How nice would it be to have wireless coverage indoors that was equal to outdoors and that worked both in downtown San Jose and downtown Boulder Creek! There would be plenty of price competition and consumers would get better pricing and better service. A few weeks ago, I wrote that I had changed my opinion that we would see several mergers before the end of the year that would facilitate U.S. carriers in their efforts to move forward.
I now believe that network sharing is a better way to go than network merging. None of us know what will happen, and I am sure that the network operators are exploring all of their options both with each other and perhaps with non-network players. In the meantime, the business and wireless press is having a good time tracking down rumors and speculating about who is doing what with whom. But none of it matters until a deal is inked and has passed the approval of both the FCC and the DOJ.
I believe industry "outsiders" may have the most important influence on what carriers do and how fast they build out their 3G systems. But that's another story. Stay tuned. <<
- Eric - |
