Subject: [NEXTEL-1] Long Slump Likely to Bring Consolidation to Telecommunications

From: Marcel <[email-masked]>
Date: Fri, 03 Jan 2003 01:40:15 -0500

Long Slump Likely to Bring Consolidation to Telecommunications
Industry
Source: Chicago Tribune
Publication date: 2003-01-02

Jan. 2--After a year chock full of cooked books, shady deals and
bankruptcies, the telecom industry desperately seeks a return to stability,
respectability and, most of all, profitability.

Most insiders expect this yearning will make 2003 the year of the deal,
beginning a consolidation trend in which the big get bigger and the others
get lost. When things shake out, say several observers, there likely will be
only a handful of major national telecom companies left standing, along with
a few regional players.

Consolidation appears in the cards for every sector--wireline carriers,
wireless providers and equipment-makers--but given the shortage of cash by
nearly everyone in telecommunications, it is difficult to predict how the
various players will come together.

"Money is the sticking point for everybody, even us," said Michael Birck,
chief executive of Naperville-based Tellabs Inc., which has about a billion
dollars in the bank. "We've got as much cash as anybody, but we're
reluctant to take the cash level down appreciably because nobody knows
when this [slump] is going to change direction."

Instead of the big-bucks deals of the go-go '90s, Birck predicts a far more
somber consolidation in coming months.

"These mergers will happen when two companies hold their noses and
decide to come together so they can survive," he said. "There'll be no
premiums paid, nobody makes any money on it, but you combine to get rid
of redundant management, economize and, maybe, survive."

Van Cullens, CEO at Aurora-based Westell Technologies Inc., has similar
expectations. He believes the consolidation will start with the
record-smashing bankruptcy of WorldCom Inc., which owns MCI, the No.
2 long-distance company, and UUNet, a huge part of the Internet backbone.

"I believe they're going to carve up WorldCom," Cullens said. "I think the
same thing will happen with the US West part of Qwest.

Probably Qwest isn't viable on its own."

Birck and Cullens agree that they and other equipment manufacturers have
no hope of improvement until the carriers get back on their feet. Once a big
deal is made, or negotiations start, it should be like the first olive out of the
bottle, with many more following.

"What is clear is that if an incumbent local carrier moves to acquire part or
all of WorldCom, other incumbents will move against AT&T," said Raul
Katz, a vice president at consulting firm Booz Allen Hamilton.

But while consolidation pressure has been growing for months, there are
obstacles to getting things started, Katz said.

"Everybody recognizes industry consolidation is good," he said. "But they
also see from experience how difficult it is for these mergers to work. So a
lot of players are thinking it's best to let someone else do it, and the whole
industry gains while they avoid the pain involved. That's definitely an
obstacle."

Among wireless carriers, there's been much speculation about who buys
whom. But antitrust concerns and technological incompatibilities have
prevented any deals.

Katz said that failing outright mergers, some wireless carriers may do more
network-sharing arrangements like the limited ones in place among such
players as T-Mobile, Cingular and AT&T Wireless. Those three also have
been in merger talks with one another that didn't produce fruit.

"Network sharing lets the carriers avoid building redundant networks, reduce
operating expenses and buys them a little time until a decision on a merger
must be made," he said.

What kind of role the Federal Communications Commission may take in
telecom consolidation is a major question. FCC Chairman Michael Powell
has stated that he might look favorably upon the acquisition of WorldCom or
its parts by an incumbent local company.

And Powell has suggested that he views competition broadly--looking at
competition to the Bell wireline from cable and wireless carriers, for
example, as significant as competition from other wireline carriers. Powell
appears to be retreating from requirements to give consumers a choice
among two or three wireline providers.

That could be a problem if companies like SBC Communications Inc.,
Verizon Communications Inc. and BellSouth Corp. take over long-distance
carriers MCI, Sprint and AT&T, because SBC, Verizon and BellSouth also
control the top two wireless carriers.

Competition between a Verizon wireline and Verizon wireless service looks
like a monopoly choice to most people.

If the FCC allows two or three companies to dominate the nation's wireline
service, and the same companies also control wireless, there'd be no
competition if those companies continued to respect geographic restrictions
on where they offer wireline service.

But regulators would face huge resistance from SBC, Verizon and BellSouth
if they tried to restrict wireline firms from also offering wireless.

New technology enabling wireless services to integrate with wireline
networks offers traditional wired phone companies a much needed
opportunity to revitalize themselves, said Blaik Kirby, a senior vice president
at Adventis, a Boston-based consultancy.

Kirby said the new equipment will combine high-speed data over wireless
local area computer networks, or Wi-Fi, with data networks delivered over
third-generation mobile phones.

"This technology will further erode the traditional wireline business," said
Kirby. "Or it could help traditional companies reinvent themselves."

Kirby and others suggest that merely merging into larger companies won't
be sufficient for telecom companies to thrive in the future.

They also must reorient themselves to provide an array of new products.

This will be especially difficult for large, entrenched firms such as SBC and
Verizon, said Salvador Arias, a marketing leader with IBM Business
Consulting.

"The traditional home landline phone is being displaced," Arias said. "Bell
companies need to anchor the landline. They can do this by selling new
applications, such as home security, that work over landlines.

"They can also do it by integrating wireless phones with home networks. If
your cell phone offers voice dialing, then that feature would be available
when you're at home, and your cell phone becomes a cordless phone in
your home network."

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=35587875&ID=cnniw&scategory=Telecommunications%3AWireless&

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