VoiceStream and Cingular latest target of merger rumors

VoiceStream and Cingular Wireless, the joint venture between BellSouth and SBC Communications, reportedly have entered into initial merger talks.

Wireless industry analysts have speculated that the initial rounds of consolidation -- which is expected to occur once the FCC relaxes the amount of spectrum one company can hold in each market by 2003 -- will involve the nation’s GSM/GPRS players: VoiceStream Wireless, Cingular Wireless and AT&T Wireless.

Now they believe VoiceStream, owned by Deutsche Telekom, and Cingular make a better fit.

“We do not believe that VoiceStream will purchase [AT&T Wireless], since Deutsche Telekom is not in position to make an acquisition and is in more need to pay down debt, which could be done by selling VoiceStream to Cingular,” said Patrick Comack, telecom analyst at Guzman & Co., in a recent research report. AT&T Wireless “has no need to acquire VoiceStream.”

Rather, a deal between VoiceStream and Cingular makes sense due to VoiceStream’s strong spectrum position and small subscriber base and to Cingular’s relatively weak spectrum position but larger customer base, said Michael Bowen, principal with SoundView Technology Group.

In addition, said Bowen, VoiceStream is much further ahead with its GPRS overlay than Cingular, giving Cingular a way to rationalize the deal given the high capital expenditure budget it has on tap to buildout its GSM/GPRS network. A combination of the two companies would rival Verizon Wireless, the largest wireless operator in the U.S.

Deutsche Telekom, which recently ousted Ron Sommer, is struggling under $64 billion in debt. VoiceStream was the largest and most controversial result of Sommer’s acquisition spree that began when he took the former state-run incumbent public in 1996.