Join or jump ship

Where once there was one telecom operator, now there are many. At the rate companies have been merging, though, the multitudes may whittle down to just a few. Of all the recent mergers, the biggest news has come from entrenched landline players-with the Bell Atlantics and Nynexes of the world joining forces-and, of course, the MCI/WorldCom deal.

As one of the first mergers between medium-sized companies-and one of a few in the wireless world-the Alltel/360 degrees Communications deal last week caused a big splash. The buzz surrounding the merger focused on both the importance of a bundled product offering and the significant economies of scale that Alltel will experience in its new, larger incarnation. These two factors, while good news for Alltel, say one thing to the small guys: Join or jump ship.

The bundle factor means not only that Alltel can offer customers a variety of services from one source-the jury is still out on whether users really want one-stop shopping-but also that if one component of the bundle fails, the whole ship doesn't sink. Diversity can serve as a flotation device. And Alltel's new size means the company can save on equipment costs and pass these savings on to users, if it wants.

The disadvantages that the small guy faces against its new larger sibling include fewer cost savings on the equipment and operations end because of size. And while some smaller companies offer a wide range of services, others pay hefty fees to resell or access another operator's services. Higher costs paid for equipment and additional services will result in higher prices for customers, and the small guy may have a tough time competing in this environment.

One analyst told me that 360 degrees may have seen this day coming and so decided to join forces with Alltel. If the Alltel/360 degrees merger turns out to be the tip of the iceberg of consolidation among medium-sized companies, the future may find the small guys surrendering themselves to the medium players-or jumping ship.