Better Is Better

At (electronic) press time, rumors about Cingular Wireless (or NTT DoCoMo, or Nextel, or Vodafone) making an all-cash bid for AT&T Wireless were still just that -- rumors. And not at all new rumors, either: A quick check of Telephony's own archives turns up a story from the Nov. 12, 2001 issue, published the week after the FCC voted to phase out its spectrum cap and eliminate it altogether by Jan. 1, 2003. The story cites industry speculation that mergers and acquisitions would run rampant in the wireless sector as a result of the FCC ruling, with all wireless players seeking to increase their mass as quickly as possible.

Apparently the industry (and Telephony) overestimated the aggressiveness with which wireless service providers would pursue expansion, and perhaps even how much the spectrum cap factored in to those considerations. With the benefit of hindsight, it's possible to speculate now that no consolidation occurred then because most wireless carriers lacked the means to invest heavily in network or service expansion anyway--one of the main drivers they would have had for requiring additional spectrum.

So why now? (Incidentally, the Telephony article of 2001 did quote Frank Marsala, a senior research analyst for Robertson Stephens, saying "Cingular will be a buyer at some point.") The primary reason to consolidate in the current environment is to improve service competitiveness by network enhancement. And the reason that is a bigger issue now than ever is Verizon.

Verizon's recent revelation that it will boost its capital spending on both wireline and wireless improvements by $3 billion was a wake-up call to the industry, and to the wireless sector in particular. The carrier's commitment to rolling out a nationwide 3G footprint via CDMA 1x EV-DO technology certainly was heard loud and clear by any wireless carrier hoping to compete with Verizon Wireless for the hearts of mobile professionals. If the consolidation rumors are true, than Cingular's first response was to try to improve its competitiveness by growing bigger than Verizon.

But in this era of moderation, wireless competitiveness is no longer about scale. It's about defensible strategy that improves both service capability and quality. Those are subjects no merger discussions should be without.

E-mail me at jmeyers@primediabusiness.com.