Scenario for consolidation in the wireless industry

[Janus]

Everyone agrees that consolidation will happen sooner or later. The question is which companies will be involved. Check out this scenario: T-Mobile (the fastest growing provider in the US with 927,000 net adds in Q1) will merge with Cingular (the slowest growing with 189,000 in Q1) at the beginning of 2004. SBC and Deutsche Telekom (which has reduced its debt under 50 billion Euro by then) will run the combined company as a 50/50 joint venture. BellSouth´s share in the company will be bought by SBC and DT. The Cingular brand will be dropped, as T-Mobile is one of the biggest global wireless brands.
The combined company probably will have more than 35 million customers by then, thus rivalling Verizon as the biggest wireless provider in the US. The combined networks of the two companies will greatly improve coverage and make expanding coverage far cheaper. (T-Mobile and Cingular already share their networks in CA/NV and NY, and T-Mobile is roaming on Cingular in the Carolinas.
Vodafone will sell its 45% stake in Verizon wireless, because it wants to be present with the Vodafone brand in the US. With the 20 something billion dollars Vodafone will buy AT&T wireless, because they of course want a GSM provider. Gradually the name will be changed to Vodafone - like they have done it in Germany or Italy.
Nextel will stay alone, because there network is IDEN and not compatible with another provider.
Verizon wireless and Sprint won´t merge, because the combined company would be far to dominant.

Any doubts?

[Kenster]

Janus, I think you've hit it dead on!

Seriously though, you do raise some possibilities and these scenarios have been talked about before.

So are you living in Germany now? Any rumors there as to what DT will do with T-mobile USA? Will they be willing to sell a goose that is beginning to lay the golden eggs?

The interesting thing too is what the new Vodafone CEO's vision will be when he takes over the rein soon and how much will he detest the fact that Vodafone users have to roam on T-mobile here in the US. But it has been noted by analysts that the CEO is someone who is very interested in a seamless transatlantic network. Financially, Verizon is doing well but we're not talking about a restaurant chain nor running shoes -- it's a major cellular network Vodafone is interested in. And there are serious concerns because how does Verizon's CDMA network fit into Vodafone's plans? "Oh yes Vodafone is great for our european customers because we all give tens of millions of dollars per year to T-mobile to roam on their network in the US. Ah yes we do have a major stake in Verizon but for some reason they don't share our same vision and are continuing to use an incompatible network."

There is no doubt the new CEO will take a serious look at the current game plan and architect his vision for Vodafone. Let's see...

Anyhow, DT will be very tempted if Vodafone begins to flash $20 billion dollars CASH in it's back-pocket to make a nice offer for T-mobile USA. But of course, DT may not budge because they will wrestle with the fact that Tmobile USA is doing well and it provides the T-mobile brand a formidable GSM presence in the largest market in the West -- and in the long-term it would be strategically wise for DT to hang on to them.

[Matt]

Janus, while your scenario is plausible, I honestly don't see DT selling anytime soon. TM USA has trimmed their net loss to 216M, so a profit is just around the corner. TM USA's growth is driving DT and will enable them to pay off more and more debt into next year. TM is almost cash flow positive - their operating loss was just $24M this quarter. My opinion is that since they made is this far w/o selling, they won't do it. Yes TM is not the biggest fish in the US pond but they are (an increasing part) of the 3rd largest fish in the world.

[ILUVSOCAL]

And the smaller carriers will keep doing what they've been doing, offering great customer service and signal to those of us who just can't get the coverage we need from the larger ones [img]i/expressions/face-icon-small-smile.gif[/img]

[polonius]

It's definitely A likely scenario, but there are some other variants that are also plausible. First your forgetting about the third player with global ambitions, and the only one with a brand name to rival Vodafone's -- yes, the future is bright, because I'm talking about Orange.

It's becoming increasingly clear DT won't sell. SBC/BellSouth might -- Bellsouth in particular needs to either focus more on their latin american properties or get out - holding on to them while underinvesting in them as they've been doing just isn't a long term strategy.

So Orange might definitely be interested in Cingular. Vodafone I still think is just going snap up another 5% of Verizon wireless and take over, but the idea of buying AT&T is also potentially interesting -- but how would DoCoMo react? They definitely see Vodafone as a threat, as they also have ambitions to be a global brand.

Sprint's downward slide is going to be as rapid as it will be irreversible, and probably will continue until US Cellular or Verizon picks up remainders at bargain prices in a year or two.

[Janus]

Orange may have global ambitions, but since they belong to France Telecom they lack the cash or size to buy Cingular - in my opinion. I think NTT DoCoMo would sell its 15% stake in ATTWS and happily take the cash. It is not a global brand and their i-mode (or m-mode) isnt the success they hoped for.
I dont think Vodafone will stick to Verizon Wireless, because the coming CEO Arun Sarin wants the Vodafone brand in the US. Verizon wont change to Vodafone and more importantly theyre CDMA, which is of no use to Vodafone.
T-Mobile and Cingular would be a perfect combination. SBC and Deutsche Telekom could save a lot of money on network expansion and the weak Cingular brand could be dropped. At the end of this year it will be further asured that T-Mobile is the fastest growing wireless provider in the US and DT will be in a good bargaining position with SBC, BellSouth and their slow growing Cingular brand.

[ILUVSOCAL]

"Orange may have global ambitions, but since they belong to France Telecom they lack the cash or size to buy Cingular"

Yeah, after the their stupid little chirade, like any company from France would even have a chance in buying an American company. They're good at building walls though, that Zigfreid line sure kept the Germans back in WWII [img]i/expressions/face-icon-small-tongue.gif[/img]

[CaliphoniaBoy]

Also: if you want to buy an American phone company you need congressional approval... I highly doubt that a French company would get that anytime soon...

[polonius]

Originally posted by: ILUVSOCAL
"Orange may have global ambitions, but since they belong to France Telecom they lack the cash or size to buy Cingular"

Yeah, after the their stupid little chirade, like any company from France would even have a chance in buying an American company. They're good at building walls though, that Zigfreid line sure kept the Germans back in WWII [img]i/expressions/face-icon-small-tongue.gif[/img]

It's spelled "charade", which you'd know if you had studied french -- one of many words it has contributed to english.

The "zigfreid line" kept the French out of Germany. The Maginot line was designed and built by the french to keep the germans out, and contrary to popular belief was not the cause of France's loss.

Stick to mobile technology, your knowledge of language and history definitely does not create any professional opportunities for you.

[ILUVSOCAL]

Thanks for the personal insults, the mods have been notified [img]i/expressions/face-icon-small-smile.gif[/img] I meant to say Maginot line, and yes, once in a while we all misspell words. You however, are insulting and rude. Leave the personal attacks to the politicians, they're much better at it.

[polonius]

Originally posted by: CaliphoniaBoy
Also: if you want to buy an American phone company you need congressional approval... I highly doubt that a French company would get that anytime soon...

no, what SOME claimed required congressional approval with the DT acquisition of VS was that there is a law that says you cannot have foreign GOVERNMENT control of a US phone company, and some argued that the German government's approximately 40% stake in DT gave it control. Other than that restriction -- which many have questioned the legality of -- there are no restrictions on ownership other than the usual market regulations. If I had the cash, I could go after any American phone company I wanted and congress could have nothing to say about it.

[AustinPowers]

If you have money, you can do anything... Washington doesn't turn down money, it only wastes it.

P.S. - You can end the speculation. I personally will be buying T-Mobile.

[polonius]

I'm actually begin to question the whole line of thinking that says consolidation is "inevitable". I think there is another possibility, and I think it's getting more viable every day. The economic driver behind consolidation is that the potential revenues are insufficient to support the capital requirments and maintenance costs required for six independent, redundant national networks. No doubt about that. But the earlier network sharing deals between tmo and cingular, and more recently between tmo and AT&T show that there is another way to reduce these costs without consolidation. What may happen is the US may consolidate down to 2 - 3 NETWORKS, but you could still have six (or more) independent brands each separately marketing services running over those networks.

In any case I only see this happening in GSM -- Nextel has no one to consolidate WITH. Smaller cdma guys like US cellular may get scooped up by verizon at bargain prices at some point, but who would ever buy Sprint?

[bobolito]

Once Cingular completes their GSM conversion they will be in the better position to be bought by a global carrier. T-Mobile is already owned by DT and they won't give it up. AT&T already has ties to NTT so that complicates matters a bit. That leaves Cingular an easy pray for, say, Vodafone. Rumors of Vodafone splitting off Verizon and their ambitions of entering the US market will leave them in good position to aquire an American GSM carrier and Cingular may be the pray.

[Janus]

Originally posted by: polonius
I'm actually begin to question the whole line of thinking that says consolidation is "inevitable". I think there is another possibility, and I think it's getting more viable every day. The economic driver behind consolidation is that the potential revenues are insufficient to support the capital requirments and maintenance costs required for six independent, redundant national networks. No doubt about that. But the earlier network sharing deals between tmo and cingular, and more recently between tmo and AT&T show that there is another way to reduce these costs without consolidation. What may happen is the US may consolidate down to 2 - 3 NETWORKS, but you could still have six (or more) independent brands each separately marketing services running over those networks.

In any case I only see this happening in GSM -- Nextel has no one to consolidate WITH. Smaller cdma guys like US cellular may get scooped up by verizon at bargain prices at some point, but who would ever buy Sprint?

Polonius you got a point there. Thats one way of reducing costs, I agree. But in the case of T-Mobile and Cingular I still believe that consolidation could happen.
T-Mobile is just too small. The CEO of Deutsche Telekom said that T-Mo USA would need at least 15-16 million customers to make money in the medium term. IF they could sustain their high growth rate it would take them nearly one and a half year to reach that number of customers - a pretty long time. So DT would be inclined towards some kind of merger.

SBC (and BellSouth) on the other hand suffer from the weak Cingular brand, they just added 189,000 customers in Q1. Dropping the Cingular brand in favor of the (supposedly) stronger brand of T-Mobile in a 50/50 joint venture with DT, would offer SBC a higher growth potential.

Finally SBC and DT through their joint venture T-Mobile USA would be in a far better bargaining position towards network infrastructure suppliers as well as towards the cell phone manufacturers.

[polonius]

Originally posted by: Janus

Polonius you got a point there. Thats one way of reducing costs, I agree. But in the case of T-Mobile and Cingular I still believe that consolidation could happen.
T-Mobile is just too small. The CEO of Deutsche Telekom said that T-Mo USA would need at least 15-16 million customers to make money in the medium term. IF they could sustain their high growth rate it would take them nearly one and a half year to reach that number of customers - a pretty long time. So DT would be inclined towards some kind of merger.

SBC (and BellSouth) on the other hand suffer from the weak Cingular brand, they just added 189,000 customers in Q1. Dropping the Cingular brand in favor of the (supposedly) stronger brand of T-Mobile in a 50/50 joint venture with DT, would offer SBC a higher growth potential.

Finally SBC and DT through their joint venture T-Mobile USA would be in a far better bargaining position towards network infrastructure suppliers as well as towards the cell phone manufacturers.

Yes, I think many scenarios that do not involve the t-mobile brand EXITING the US are possible. But the investors are becoming more and more confident (esp. with the QI results) about TMO's long term north american strategy so i think earlier pressures to cash out are diminishing. But doesn't Cingular need the TMO brand (OR vodafone OR Orange) more than v.v.? If Cingular is weak, I don't see that TMO sees much more value in growing through acquisition rather than organic growth -- especially if they can reduce capex through sharing in the meantime.

[bobolito]

I think all these companies are married to the wrong ones: Verizon/Vodafone and SBC/Bellsouth.

Another scenario I consider likely is T-Mobile staying put with DT. If it ain't broke don't fix it. Vodafone splitting off Verizon and acquiring Cingular's Bellsouth portion if not entirely. Then, Cingular can change names to Vodafone and be run by SBC/Vodafone. Bellsouth now free from GSM can now either buy Sprint or get Verizon's 45% left by Vodafone. But then again, perfect marriages are rare to happen.

[Matt]

Originally posted by: Janus

T-Mobile is just too small. The CEO of Deutsche Telekom said that T-Mo USA would need at least 15-16 million customers to make money in the medium term. IF they could sustain their high growth rate it would take them nearly one and a half year to reach that number of customers - a pretty long time. So DT would be inclined towards some kind of merger.

Janus do you have a link to your 15-16M number? I follow DT pretty closely as a user of T-Mobile service and investor in DT (good thing I'm playing with house money now [img]i/expressions/face-icon-small-happy.gif[/img]), and have not seen that. Thanks.

[polonius]

Originally posted by: bobolito
I think all these companies are married to the wrong ones: Verizon/Vodafone and SBC/Bellsouth.

Another scenario I consider likely is T-Mobile staying put with DT. If it ain't broke don't fix it. Vodafone splitting off Verizon and acquiring Cingular's Bellsouth portion if not entirely. Then, Cingular can change names to Vodafone and be run by SBC/Vodafone. Bellsouth now free from GSM can now either buy Sprint or get Verizon's 45% left by Vodafone. But then again, perfect marriages are rare to happen.

BellSouth is short of investment capital, so I don't see them buying anyone, not even sprint at fire-sale prices. Their better bet is to exit Cingular and develop their latin american properties, which have a lot more growth potential and less competition. (I tell them this EVERY time they call me and ask for advice).

[Janus]

[quote]
Originally posted by: Matt

Originally posted by: Janus

Janus do you have a link to your 15-16M number? I follow DT pretty closely as a user of T-Mobile service and investor in DT (good thing I'm playing with house money now [img]i/expressions/face-icon-small-happy.gif[/img]), and have not seen that. Thanks.

Hi Matt, i got the link but unfortunately it is only available in German :-( anyways i post it and you can take a look. (basically he says they will definitely make money when they reach 15-16 million customers, which should be the case in 2005 at the latest and that right now T-Mobile USA is overtaking Nextel as No. 5 in the US)

link

[Janus]

sorry, the following link is working.

This is working