Consolidation fallout: Dwindling number of providers leave fewer options
August 22 2008 - 5:59 am ET | Allie Winter | RCR Wireless News
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With the U.S. economy in a lull, many businesses suffer. Wireless, however, still thrives. And as the top four carriers continue to get stronger and hungrier, it could become a game of Pac-Man; big guys eating the little guys.
Analysts and research firms have been predicting the era of carrier consolidation for quite some time and saw their expectations continue to come true this year when Verizon Wireless made the decision to acquire Alltel Communications L.L.C. this summer — and the recent closing of its acquisition of Rural Cellular Corp. — and even when mobile virtual network operator Virgin Mobile USA Inc. ate a snack called Helio L.L.C.
Keith Mallinson, president of industry analyst firm Wise Harbor, said he and colleagues had been predicting consolidation like this for years with no results.
“Nothing happened and then it all came,” Mallinson said. “AT&T and Cingular was a big milestone.”
The tease
Various other rumors have swirled and either been silenced, ignored or pushed to the back burner. Leap Wireless International Inc. and MetroPCS Communications Inc. have been rumored to be merging for years now, but a deal has yet to materialize.
Susan Welsh de Grimaldo, analyst at Strategy Analytics, said it may be a timing issue, but, like most she sees consolidation in their future.
“They’re both doing fairly well in terms of building themselves up [by] putting money into broadband and new spectrum,” Welsh de Grimaldo said. “I think they’re trying to make themselves profitable on their own and withstand the current economic situation and get through that to look attractive.”
Welsh de Grimaldo also said MetroPCS’ decision to move forward with LTE as its next-generation technology makes them a good-looking sale.
Open options
Another carrier possibly toted for acquisition or consolidation has been U.S. Cellular Corp. The family-owned company, however, is in no hurry to merge. Mark Steinkrauss, VP of corporate relations, said he doesn’t know if there’s any interest from parent-company Telephone and Data Systems Inc. or the Carlson family that controls TDS in selling or merging U.S. Cellular.
“It doesn’t mean the board couldn’t do it,” Steinkrauss said. “It’s not cast and concrete. There can always be a best offer.”
Unlike its shadowing competitors, U.S. Cellular’s customers are 95% postpaid and the carrier had low churn and good results in its second-quarter earnings. However, Steinkrauss did say if the carrier was to consider merging or selling, it would likely be driven by the carrier’s lack of network in certain areas.
“If we lose a Chicago customer because they move to L.A. where we don’t have coverage, we’re at a disadvantage and they’re better off switching,” Steinkrauss said. “There’s always some bugaboo out there someplace and the boards would have to reconsider.”
While selling doesn’t seem to be in the carrier’s near future, it has been considering doing some shopping of its own. If the Federal Communications Commission does require Verizon Wireless to sell off some of the markets it will acquire through the purchase of Alltel, Steinkrauss said U.S. Cellular may have an interest in picking up some of those properties.
Big players not immune
Next came a slew of speculation about who would snatch up Sprint Nextel Corp. Would T-Mobile USA Inc. buy the carrier? Would SK Telecom? All ideas were put out there and eventually shot down.
“T-Mobile has to worry about rolling out 3G,” Welsh de Grimaldo said. “That’s the last thing they need, the two sets of technology.”
The more recent SK Telecom interest was confirmed to only be investments in the carrier, not a purchase.
Even though announcements can be made any day and carriers continuously change their minds, these confirmations prove most acquisitions and mergers are done, for now. With Verizon Wireless’ purchase of Rural Cellular finalized, and Alltel not far behind, these purchases have become realities. Industry analysts agree wireless consolidation is only just beginning, but will continue slowly over time.
“The way the industry is going, we’ll see more consolidation,” Welsh de Grimaldo said. “[There’s] really not that many companies left right now.”
