Vodafone takes on the World

The outcome least expected by U.S.-centric observers in the contest over AirTouch happened: Vodafone won. Effects of the combined company-which will form the largest wireless company in the world and third largest company in the U.K.-should reverberate through the wireless world for some time.

Vodafone AirTouch will pull out far ahead of the pack because of sheer size. With a combined market capitalization of $110 billion, the company will operate in 23 countries and serve 23 million customers, said Sam Ginn, CEO and president of AirTouch and future chairman of Vodafone AirTouch.

The company expects cost savings of $330 million by 2002, said Chris Gent, CEO of Vodafone.

The acquisition was made largely with international potential in mind.

"We expect to be the operator of choice for multinational companies and business travelers" as well as the growing number of consumer travelers, Gent said. The company hopes to target those travelers possibly with a European one rate, the first of its kind, that allows roaming in markets where Vodafone AirTouch operates.

Such a plan has struck fear in many European operators. "It's shaking up the whole European scene," said Martyn Roetter, director of communications technology for Arthur D. Little. "One consequence of Vodafone AirTouch is it's making people wake up and [question] the value of having mobile operations in many different countries." Unless operators can string networks together across countries, they may be at a disadvantage. Seemingly as testimony to such, Telia of Sweden and Telenor of Norway, both state-run telecom firms, last week announced plans to merge.

The AirTouch acquisition has also had far-reaching effects in the U.S., where it may be at a disadvantage because it still falls shy of a national play (see story on page 28.) "AirTouch had two strategic issues it needed to solve," Ginn said. One was to grow the domestic footprint and the other was to reposition for international growth. "We haven't solved the domestic issues," he said.

"We're hopeful that we can sit down with Bell Atlantic and [make them] understand that the real enemies are AT&T and Sprint," Ginn said. He hopes to form a joint venture or operating arrangement enabling easy roaming between the AirTouch and Bell Atlantic networks. "If we can do that, we'll be twice the size of AT&T," Ginn said.

AT&T likely was relieved that the potentially formidable competitor never materialized, said Bob Egan, research director at The Gartner Group.

Bell Atlantic may not be as optimistic about the AirTouch arrangement. The same day AirTouch chose Vodafone, Bell Atlantic filed a lawsuit regarding a non-compete clause in an earlier joint venture with AirTouch, called TomCom. A short two years after its formation, TomCom, which was to be a joint marketing company, was essentially terminated, according to the lawsuit. Bell Atlantic would like to be rid of the promise it made as part of TomCom not to compete with AirTouch in any market. "I think they'll get out of it," said Becky Diercks, senior director at Cahners In-Stat Group.

Meanwhile, AirTouch has been attempting to block Bell Atlantic's proposed merger with GTE, which includes properties that compete with AirTouch.

Instead of partnering with Bell Atlantic, some speculate that Vodafone AirTouch might sell the U.S. properties, although company leaders said they will keep them, Roetter said. In that case, Bell Atlantic might end up owning AirTouch's U.S. business after all.

The new company could also affect the ongoing third generation debates. "This is an extremely important issue," Ginn said, who personally vowed to be more involved in harmonizing the 3G standard. "It's important that the next generation of [code division multiple access] be a universal standard. It makes the pie so much bigger."