AT&T and Cingular: Hot for VoiceStream?
The possibility of debt-ridden DT selling VoiceStream is a hot topic on the markets. However, the German company has strenuously denied that it has any plans to sell the unit. "Of course they’d say that," snorts Roger Entner, program manager of the Yankee Group’s Wireless/Mobile Services research and consulting practice. "But everything is for sale if the price is right."
DT certainly needs the money. The company has spent over $60 billion on 3G licenses in Germany, Britain, Austria and the Netherlands. And that's against a background of falling average revenue per user (ARPU) from mobile voice communications and a slow adoption of wireless data services that many operators were hoping would make up the shortfall.
In that environment, DT may be sensible to sell off the increasingly successful VoiceStream unit to reduce its debts and fund growth in other areas. "They need the money terribly bad," says Jake Kaldenbaugh, analyst at Unstrung’s very own Wireless Oracle paid subscription service. "VoiceStream just posted great numbers and accounted for something like 40% of DT's earnings… [but] any US carrier would require significant cash flow to further fund 3G network buildout. DT can't do it. Therefore, continuing to hold VoiceStream will hurt VoiceStream going forward. US carriers want to make acquisitions badly. DT is actually being very savvy in this regard, in that they are going to sell into a hot market."
However, Tim Farrar, principal consultant at Analysys Consulting Ltd., reckons that if Deutsche Telekom does sell, it will be a sign of the company’s overall desperation and an admission that it should never have bought VoiceStream for $50.7B in the first place. "I think everyone has to do things that are unpleasant in the current financial situation," he says, but adds that any sale would be a "last resort" and a "bitter pill" for Deutsche Telekom.
With the acquisition of VoiceStream in 2000, DT created the first Global System for Mobile Communications (GSM) operator. Until very recently, VoiceStream was only choice for American business users who traveled frequently between the U.S and Europe and wanted to use one "world" phone to make their calls while roaming on European networks.
It is the fact that VoiceStream runs a GSM network, and has far-reaching roaming agreements in place, that makes the company such a logical partner for either AT&T or Cingular. "If there’s going to be consolidation, the cost of doing it with incompatible networks would render the benefits negligible," says Farrar. This rules out major Code Division Multiple Access (CDMA) carriers Sprint Corp. and Verizon Wireless.
Both AT&T and Cingular are in the process of moving to GSM/GPRS (General Packet Radio Service) networks, and after that they plan to upgrade to Enhanced Data GSM Environment (EDGE). VoiceStream has recently ordered millions of dollars worth of GSM base stations with EDGE compatibility from Nokia Corp. AT&T has also recently announced plans to add more international roaming agreements to its portfolio.
In fact, in a further twist to this already complicated situation, it may not be AT&T or Cingular that buys VoiceStream, but rather a combined AT&T and Cingular: The other hot gossip on the U.S wireless scene is that the pair are in merger talks. Certainly, Cingular would be unlikely to have the monetary muscle to buy VoiceStream without merging or spinning off from parent companies BellSouth Corp. and SBC Communications Inc.
Yankee Group’s Entner notes that Cingular already has joint ventures in place with both AT&T Wireless and VoiceStream. "It's almost like they’re already testing the waters," he says.
However, banish any thoughts of such a wireless ménage à trois becoming official until much nearer the end of the year, Entner says. "Nothing can be consummated yet because of the spectrum cap."
Ah, that pesky spectrum cap. The FCC will repeal the bandwidth controls on January 1, 2003, which means there will be no federally mandated limit on how much spectrum any one operator can use in any geographic region. The government body originally put limits on spectrum use in a bid to promote competition. The consensus is that the ruling did too good a job, and there are now too many carriers on the playing field.
Clearly, some of the larger carriers will look at January 1, 2003, as the beginning of a wireless turkey shoot in the U.S. Perhaps there's a deeper reason for all the M&A rumors flying around now: the big operators are sending out beaters to get the choicest birds into the air before the hunt really starts.
— Dan Jones, Senior Editor, Unstrung
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