Wireless redesign

Consumer advocates worry that mega-mergers in the telecommunications industry will hurt competition. But that's not the case with the wireless companies caught up in the action.

Even as the combinations of Bell Atlantic and GTE, SBC Communications and Ameritech, and MCI and WorldCom move forward, carriers with established national wireless footprints have strengthened their offerings, resulting in price drops of about 20%, says Mark Lowenstein, senior vice president for The Yankee Group (Figure 1).

"It's become clear that the wireless game for national players has become one of size and scope," Lowenstein says, even though wireless has been almost an afterthought in some of the merger announcements. "There's been a tremendous amount of competition during the last 12 to 18 months."

Officials with carriers involved in mergers and acquisitions aren't talking because of Securities and Exchange Commission-imposed quiet periods. But their subscriber numbers are growing (Figure 2).

Although the consolidations in 1998 are significant, they represent the tip of the iceberg for what Bob Egan, research director for The Gartner Group, expects to see in 1999. The merged Bell Atlantic/GTE seems a likely partner with AirTouch, for example. Another combination with interesting synergies would be AT&T and BellSouth, he says.

End users, demanding consistent quality and ever-larger roaming areas, are driving the wireless combinations. The only way carriers can meet those needs is by consolidating systems, Egan says.

But that is no simple matter. SBC and Ameritech must decide how they will deal with SBC's time division multiple access system and Ameritech's code division multiple access (CDMA) format. Consolidations leave holes that require network buildouts or include overlaps that will mean divestitures. That opens the way for a system aggregator to combine regional systems into a truly national network. MCI/WorldCom could be such an aggregator, Egan suggests.

Just as the combinations occurring among the big players are changing the competitive landscape, so are the combinations of some second-tier companies, Lowenstein says. The biggest of these was the recent $6 billion merger of Alltel and 360degrees Communications. The two expect cost savings of $100 million by 2000. The combined company, whose complementary services and markets fit together perfectly, will have more than 5.6 million customers and operations in 22 states, primarily in the South and Midwest.

Analysts aren't the only ones anticipating further consolidations. "We've been saying for the last 18 months that there's too much capacity," says a spokesman for AT&T Wireless.

Consumers are also looking for one-rate, national pricing plans, Egan says. The Bell Atlantic/GTE combination would establish a national footprint for the merged entity to offer such a plan.

Sprint PCS offers national coverage, but that's because it has an agreement with AT&T to allow roaming in areas where Sprint doesn't have coverage. Even AT&T doesn't own its entire wireless network outright. The company has partnerships with Cincinnati Bell and several other companies in certain areas.

Nextel, which has no part in a merger plan, offers a national pricing plan nonetheless. It has a slightly different strategy than AT&T and Sprint because it is targeting the business market. To do so, Nextel is expanding its network. In 1997, the carrier added more than 2000 digital cell sites, bringing the total to more than 4000. This year, it plans to add another 2000.

The merger blues Building out networks, merging technologies and combining corporate cultures will be among the many challenges the merger partners face. The first two issues-building networks and merging technologies-pose challenges even for single companies operating multiple wireless systems, Egan says.

Bell Atlantic's combination with GTE will give the merged company a strong footprint in the Southeast, but some areas still must be filled in for the merged company to have a true national offering, Lowenstein says.

Bell Atlantic Mobile President Dennis Strigl says some of the issues involved with his company's 1995 merger with Nynex provide insights today.

The earlier mergers-with Nynex Mobile and with MetroMobile in 1992-proved fruitful. Following the merger with Nynex, for example, Bell Atlantic Mobile grew from 1.8 million customers (between the two companies) to 5.5 million. The employee base grew from 4250 to 7000 to serve the increasing needs of the expanding customer base. This growth occurred despite the fact that Bell Atlantic had to divest some properties in Rhode Island.

On a larger scale, the merger with GTE will mean the divestiture of PrimeCo Personal Communications' assets because of conflicts with PrimeCo partner AirTouch Communications. Because of those concerns, Egan believes AirTouch would have been a better fit with Bell Atlantic Mobile. He still foresees the merged Bell Atlantic/GTE making a play for the part of PrimeCo it doesn't already own.

While complicated, fitting pieces of a merged company together isn't as difficult a task as some make it out to be, Strigl says.

A merged company, rather than stressing the marriage of two corporate cultures, has to pick one way of doing business and stick to it, he says. The same philosophy applies to choosing among the different digital technologies.

"If you figure you're both in the marketplace for the same reason, you don't have to be concerned about who has the best culture," Strigl says. "If both companies have had winning attitudes, then the merged company will, also."

In choosing between those cultures, the merged entity needs to look at the best practices available, Strigl says. The same is true when it comes to technology.

In the merger with Nynex Mobile, Bell Atlantic operated for some time with five billing systems before cutting them to two. But even two billing systems was too many to efficiently manage, Strigl says.

"I wish we had chosen one system and stayed with it," he says.

A firm believer in CDMA, Strigl also sees value in other forms of digital service.

Digital and other wireless technologies are continuing to grow because the equipment is useful and customers appreciate the convenience.

Wireless phones offer longer battery lives, as well as analog and digital options, and more potential areas of use.

Besides the network expansions, the handsets can now frequently be used inside office buildings. Strigl says he counts on his wireless unit as his primary communications device.

One of the areas of future wireless growth is the Internet, Strigl says.

Bell Atlantic, for example, offers wireless Internet connections for $54.95 a month, primarily for people operating with laptop computers.

Although there are no immediate plans to drop the price for the Internet connections, Strigl expects prices to continue to decline as competition stays keen and companies look to increase their market share. The best deals now are mainly for customers at the high end of the market-those buying large packages of minutes. Strigl expects to see those offers work themselves deeper into the customer bases.

But he doesn't foresee further wireless consolidations until 2000 or 2001. Next year, the merger partners will be busy completing their combinations, while start-ups will start carving out their own market niches, Strigl says.