Natural Selection

Consolidation of the wireless market continues at an unprecedented pace, with top carriers creating new national networks to generate greater economies of scale in the face of declining per-call prices.

In a span of 18 days, three new national networks were born, and the largest corporate acquisition in history was largely spawned from the wireless industry.

First, AT&T and British Telecommunications announced a combination of wireless operations. The next day, Bell Atlantic and Vodafone AirTouch said they intended to do much the same thing. Two days later, Voice-Stream announced its desire to purchase Aerial, even as the former wades through a sea of federal red tape toward Omni-point. Finally, perhaps showing its desperation for a wireless network to call its own, MCI WorldCom trumped everyone by spending a record $108 to $129 billion to win a bidding war with BellSouth for Sprint.

Whether this influx of so-called super-carriers benefits consumers or is a return to Industrial-Revolution-Age monopolies likely will be debated until the 22nd Century, or about the time pundits say the slow-moving FCC will decide whether to approve the mergers. Critics such as consumer advocate Ralph Nader vow they will stop the mergers, arguing that they hinder competition and are, thus, in direct conflict with 3-year-old government mandates.

Many analysts, however, believe the wireless industry merely is going through the process of natural selection. When it all shakes out, they say, there might be as many as a dozen super-carriers serving a global GSM market, with the number of local and regional carriers remaining virtually the same in the United States, or even growing with the population.

A recent University of California-Davis study suggests that three earlier controversial telecom mergers -- Bell Atlantic, AT&T-TCI and SBC-Ameritech -- actually increased competition based on the fact that stock prices of each of the merged firm's competitors fell because the market tightened. If competition were reduced, stock prices of each merged firm's competitors would have risen because they could charge higher prices in a looser market, according to the study.

The one consensus, however, is that the whole situation is AT&T's fault. In May of 1998 AT&T Wireless injected a flat-rate calling plan into the marketplace that set the wireless industry on its collective ear.

"Suddenly, the consumer, whether it be a business consumer or anyone else, could go anywhere in the country and have the same level of service on AT&T's own national network and not be hit with additional charges," said Ken Hyers, Cahner's In-Stat Group industry analyst.

Hastening large-carrier efforts to generate economies of scale and share best practices is the fact that wireless per-call prices have dropped 30% a year, meaning heavy users in large markets such as Houston pay as little as 7 cents per minute. Some analysts reportedly believe that number could fall to 3 cents a minute by 2004.

Ultimately, the advent of super-carriers will force carriers at all levels to enhance the wireless offerings made to consumers if they are to offset declining per-call revenues.

"Carriers are going to have to ask themselves 'What other services can I offer that are going to get the customer to come to me rather than the guy next door?'" Hyers said. "That's the kind of thing that's driven by competition."