Merger Media Mantra: Bigger Is Better
The acquisition of AirTouch by the British wireless company Vodafone is yet another manifestation of the merger mania that is afflicting the telecommunication industry in the United States and worldwide. “Bigger is better” has become the mantra. Media convergence and the pursuit of global markets are the rationales. But sense tells us that convergence is a mythical pursuit and that globalism is today’s version of colonial imperialism. As the corporate executives stand in the bow feeling the winds of high-flying wealth, I wonder what icebergs loom ahead for them.
From a regional perspective, California seems to be losing ownership of its telecommunication companies. First, Pacific Telesis was purchased by SBC Corp. in 1997. Then last year, Bell Atlantic announced its intended purchase of GTE, a formerly non-Bell company with much presence in California. And now AirTouch, which was divested from Pacific Telesis in 1994, will be acquired by Vodafone. It’s yet to be seen how this will affect California, but meanwhile, perhaps corporate executives from around the world have yet another excuse to to visit sunny California.
From a financial perspective, the price tag for AirTouch appears steep, even in an age when Internet and technology companies are being valued at astronomical amounts. Realistically, AirTouch’s profits and its number of subscribers would have to increase many times to produce an adequate return on Vodafone’s investment of $56 billion. Such an increase is not likely to happen in the highly competitive wireless market since it would require that nearly everyone in the United States have a wireless phone supplied by Vodafone/AirTouch.
From an international perspective, the deal makes much more sense. AirTouch’s and Vodafone’s European and Asian wireless properties complement each other and create more unified coverage of these international markets. It seems clear that Vodafone wanted to strengthen its presence in the European and Asian markets and was willing to pay handsomely to do so. Will Vodafone decide to concentrate on the European and Asian markets and hence sell AirTouch’s U.S. business? If so, will it be to Bell Atlantic, which offered $43 billion for AirTouch only a few weeks ago? This would be one way for Vodafone to reduce the bite of the high price for AirTouch and to recoup much of its investment.
Making sense of all the mergers, acquisitions and divestitures in the telecommunication industry is a challenging task. One way is to view it is as the pursuit of the femme fatale. In 1997, it was MCI that was the femme fatale of the telecommunication industry with its courtships by British Telecom, GTE and, finally, WorldCom, which actually consummated the relationship. This year’s telecommunication femme fatale is AirTouch, which has been chased over the past few weeks by Bell Atlantic, MCI WorldCom and Vodafone. The winner was Vodafone. But will the femme fatale look as appealing in the stark reality of the morning light?
