AirTouch Deal Could Signal New Wireless Era
The complex merger talks that continue to swirl around AirTouch Communications Inc. will produce just the first of many deals destined to dramatically reshape the U.S. wireless communications business, analysts say.
A flurry of deals in 1999--starting with the near-certain sale of San Francisco-based AirTouch--will ultimately leave the wireless market dominated by four to six national carriers, industry experts predict. That action would mirror developments in the nation’s long-distance phone business.
“We will see significantly enhanced merger and acquisition activity in the U.S. in the next year,” said Andrew Cole, head of the wireless practice at Renaissance Worldwide, a Boston strategy consulting firm. “This is the end of the independent wireless company--all the independent carriers will be eaten up.”
It remains unclear who will win the bidding war for AirTouch, but there is no shortage of suitors. Bell Atlantic Corp.’s initial bid--said to be worth about $43 billion in stock--has already been topped by Europe’s Vodafone Group, which is said to have offered about $54 billion, or $90 a share in stock and cash.
Some believe additional bids could emerge from MCI WorldCom and Germany’s Mannesman.
In the meantime, AirTouch board members must wade through a host of complex considerations, ranging from tax and earnings consequences to relative stock values and even foreign currency exchange rates, in addition to each offer’s price.
On Thursday, AirTouch shares rose $2.13 to close at $82 on the New York Stock Exchange. At that closing price, the market currently values AirTouch at $47 billion.
Among potential buyers, MCI WorldCom fell $3.25 to close at $75.13 on Nasdaq, while Bell Atlantic rose 13 cents to $56 and Vodafone fell $4.50 to $176.25. Both trade on the NYSE.
While the AirTouch merger plays out, existing national carriers--AT&T; Wireless, Sprint PCS and Nextel Communications--will continue to build on their substantial customer base.
The outcome of the AirTouch talks could trigger deals among remaining major players--BellSouth Corp., SBC Communications Inc. or a foreign company--that would create new national carriers.
Still unclear is how these changes will affect average consumers, who for the last few years have been enjoying new features and falling prices amid fierce competition.
Most consumer groups are wary of massive merging in a key industry such as telecommunications--whether wireless or the traditional “wired” business--believing that fewer competitors ultimately lead to higher prices.
Not long ago, the wireless industry was mired in a quasi-duopoly structure, with just two licensed cellular carriers in each major U.S. market and little innovation and little movement on price.
Now a flood of new companies has made the fast-growing wireless business too fractured and too crowded, analysts say. In addition, AT&T; and others have introduced attractive national pricing plans that can’t easily be matched by regional rivals--leaving them to face a slow erosion of their most lucrative customer base, traveling business users.
These days, the remaining regional companies need larger, nationwide networks--acquired through mergers or joint ventures--to reduce costs and match the lower prices offered by bigger rivals.
“This is going to be a big win for consumers,” said Rebecca Diercks, director of wireless research at Cahners In-Stat Group, a research and consulting group based in Newton, Mass. “We see five or six wireless super-carriers in the market, and we do not see any slowdown in price competition.”
As for AirTouch, many believe Bell Atlantic will prevail, despite reports of higher bids from others.
“We haven’t heard the last of Bell Atlantic,” said Matt Hoffman, a senior analyst at research firm Dataquest. “This is a very valuable acquisition for Bell Atlantic . . . and if they want to write the big check, they can.”
Bell Atlantic, with solid wireless operations covering the East Coast, needs AirTouch to expand its network in the U.S. and overseas. The company’s pending merger with GTE Corp. would also add substantial wireless operations.
AirTouch and Bell Atlantic are already equal partners in another wireless venture, PrimeCo Personal Communications, which serves many U.S. markets.
If Bell Atlantic buys both GTE and AirTouch, it would have to sell any overlapping wireless networks, including those in San Diego and San Francisco.
Vodafone, one of Europe’s largest wireless providers, is also a partner with AirTouch in an overseas venture. Adding AirTouch would beef up its European holdings and give it a small foothold in the U.S.
MCI WorldCom is a wild card. The long-distance giant has for years avoided the cellular business, preferring instead to resell the service of other carriers. But with resale profit margins collapsing and increased mobile-phone usage, MCI WorldCom will reverse itself, analysts believe.
AirTouch is not big enough to give MCI broad national coverage. Industry experts note that it is still possible to cobble together a national network through multiple acquisitions. But the more likely scenario is for MCI to buy Nextel, a national carrier focused on business customers.
In the months ahead, other players may begin making their moves.
SBC’s current wireless strategy is in chaos. Three years after its purchase of California’s Pacific Telesis, the San Antonio-based company has yet to integrate its wireless operations with those of Pacific Bell Wireless because of technical issues.
The company’s pending merger with Ameritech would create still more technical problems. Some experts have predicted that SBC will sell Ameritech’s wireless holdings to Bell Atlantic. Others say BellSouth will eventually team up with SBC and that European companies will rescue dozens of struggling U.S. carriers, such as Omnipoint.
