MIGHTY MOUSE

In the midst of today's obsession with nationwide offerings, Powertel has managed to emerge as a powerhouse, despite its regional reach. Powertel has dug deep roots in the Southeast by covering the area's major hubs - and the well-traveled highways in between

You couldn't compare Powertel to AT&T Wireless or Sprint PCS. In fact, Powertel wouldn't want you to. The operator finds strength in the fact that it is a regional player.

"From the very start, our strategy was to be regional," says Allen Smith, president and CEO of Powertel.

But the word "regional" doesn't quite do justice to Powertel's presence. Sure, it only covers 12 states in the Southeast. Plenty of other operators - 20 to be precise - have footprints throughout Powertel's territory. But what gives Powertel its true strength is the extent of its presence there. "The scope of a regional player has a lot to do with the value it can offer," Smith says.

Powertel's saturation of the Southeast is one advantage the regional operator has in today's competitive marketplace - a marketplace that grows increasingly enamored with the concept of a nationwide presence.

Surprisingly, Powertel also believes that its use of GSM technology, which doesn't yet have a national footprint, works in the carrier's favor. While technology and scope give Powertel a firm foothold in the Southeast, some say those advantages also make the operator a strong contender for future consolidation. But Powertel denies that it wants to be bought and instead continues to bolster the scale of its network.

Pervasive player

Powertel believes that it has advantages in the Southeast over the national players there. Unlike the national operators that cover major hubs in that region, Powertel also covers the major highways between the hubs. That's important because of the character of the Southeast.

"Our customer in the Southeast does business, lives, works and plays in the Southeast," says Rodney Dir, chief operating officer of Powertel. The carrier has found that most customers place long-distance calls and roam within 200 miles of their homes. A mere 1.5% of Powertel's revenue comes from roaming outside its footprint.

Because its customers tend to travel mostly within its footprint, Powertel never has charged for roaming within its coverage area. The operator has been able to afford free roaming because a sister company, ITC DeltaCom, carries its long-distance traffic.

"Very little traffic terminates outside our network," Smith says. According to him, 90% of Powertel's traffic is carried on its own network.

With pricing plans and coverage to meet the needs of users in the Southeast, Powertel never may have needed to offer a one-rate plan. But in July, the operator extended its plans nationwide, eliminating roaming and long-distance fees. The plans range in price from $30 for 120 minutes to $120 for 1200 minutes. Those prices are unique because the low-end plans are cheaper than most of the national players' plans. The breadth of the plans is competitive, too; customers can roam into any of the 3500 cities covered by GSM Alliance partners.

"Although customers will have the advantage of using minutes nationwide, we believe their usage patterns will stay in the Southeast," Dir says. Powertel created the nationwide plans to change customer perception, which was that Powertel's service stopped at the boundary of its footprint. "One of the initiatives behind the plan was to create the perception that we're much larger in scope," he says.

Powertel's digital scope helps it to attract customers that roam, too. "Powertel is focused on a uniform feature set," says David Freedman, senior managing director for Bear Stearns. Some Powertel competitors don't have extensive digital coverage, so they sell dual-mode phones to compensate. When customers travel into analog territory, though, they lose features. Powertel largely relies on its digital network, where customers have the same experience no matter where they use their phones.

Even dating back to the cellular roots of Powertel, which started as InterCel - an operating company that recently was sold off - the company has found that reducing rates on roaming and long-distance has led to favorable results.

"By giving the customer a strong value proposition, we often see that usage goes up," Smith says. With the increased usage, Powertel has been able to keep prices low and not "be in subsidy mode," he says. It helps that Powertel is a member of the GSM Alliance, which enables it to negotiate favorable roaming rates.

In addition, Powertel always has favored bucket plans as a way to keep averages up and income consistent. The company would prefer consistency rather than having customers pay very large bills one month and incur smaller charges the next, Smith says. Powertel even extends some of the benefits of its strong regional presence to its prepay users. Prepay users can roam anywhere within Powertel's footprint. As a result, those customers produce a high average revenue per user - more than $50 per month, Smith says.

Keeping suitors at bay - for now

As a regional GSM player, Powertel has been the subject of much consolidation speculation. Many industry followers believe that all the regional GSM operators will somehow consolidate to form one nationwide player. "The VoiceStream acquisition of Omnipoint is the first step toward that," Freedman says.

Although VoiceStream could be a potential suitor for Powertel, it probably isn't the only one. The Southeast's overall strong growth prospects make Powertel an attractive target, even for non-GSM players, Freedman says.

Some speculation also points to a European operator stepping in to consolidate the GSM carriers. Finland's Sonera recently bought a 9% stake in Powertel and last summer took a 19.4% ownership in GSM operator Aerial. Sonera officials say that the company is investing in U.S. operators because the low overall penetration rates here could lead to substantial future growth. Sonera also believes that it can help Powertel introduce new value-added services, which are more widespread in Europe.

The track record of Powertel's management staff also points to acquisition. "They are a good management team who knows how to sell at the right time," Freedman says. In addition to selling a long-distance company to MCI WorldCom, the team has cultivated cellular businesses that also have been sold.

While Powertel doesn't seem to be closing any doors, it isn't begging for a buyer, either. "We don't feel compelled to try to find a suitor," Smith says. "We're not building the company to sell." Powertel currently isn't in any discussions with potential acquisition partners, he says.

Powertel likely won't make any major acquisitions either, according to Freedman, but it could continue to make small purchases in strategic locations.

During the recent PCS re-auction, Powertel bought licenses in Tennessee markets that are contiguous with its footprint. "We want to keep the balance sheet in a position that we always have the opportunity to acquire a company," Smith says.

Smith looks at the experience of other telecom segments to consider what the future might look like for his company. If long-distance is an indicator, wireless may see rates continue to fall, resulting in more consolidation, he says.

Link in the chain

Being a member of the GSM Alliance has a number of benefits for Powertel besides opening the door to favorable roaming rates.

"The biggest advantage is the interoperability of service from GSM [carrier] to GSM carrier," Dir says. One of the charters of the alliance is for members to agree on common technologies and services so that customers can have a seamless experience when roaming onto all members' networks. Features such as voice mail will look and feel the same no matter whose network the customer uses.

Alliance members continue to work on keeping a standard set of services through the development of data and third generation services. GSM players have a smooth transition into general packet radio service (GPRS), which will increase data speeds from 14.4 to 115 kb/s.

"That allows us to offer applications that today at 9.6 [kb/s] aren't practical," Smith says. Powertel has targeted to have GPRS deployed in the fourth quarter of 2000. Currently, Powertel customers can receive short messages and connect to a laptop at 9.6 kb/s.

Choosing GSM has had other benefits, as well. From the start, Powertel felt it had an advantage because the GSM handset portfolio was much broader than the portfolios for other technologies.

International roaming is also clearly an advantage. Just as wireless service has progressed from being a metropolitan service to a regional and then national service, international will become increasingly important. "The next phase will be worldwide," Dir says. Powertel has forged agreements with more than 50 carriers for international roaming in 30 countries outside North America.

Looking toward the future, Powertel has been fairly active in discussions of the evolution to 3G networks and supports the wideband CDMA standard. When rolling out 3G, Powertel will identify the regions where the subscriber base is significant enough to make a return on the investment. Metropolitan areas and major transport corridors will get it first, followed by the bedroom communities of the metropolitan markets. After those are built, Powertel will look into the secondary and tertiary markets.

"Data capabilities are important to have in your home market, and they're important when you reach your destination market," Smith says. "I'm not sure it's a requirement to have 2 Mb/s mobility and data while traveling."