Subject: [NEXTEL-1] Conflicting technologies may stall cell mergers

From: Marcelrf <[email-masked]>
Date: Wed, 18 Feb 2004 11:23:04 -0500

Conflicting technologies may stall cell mergers
Last modified: February 18, 2004, 4:00 AM PST
By Ben Charny
Staff Writer, CNET News.com

Cingular's planned $41 billion acquisition of AT&T Wireless puts new
merger pressure on U.S. cell phone carriers, but incompatible back-end
technologies could make it difficult for would-be partners to find a
match.

Assuming Tuesday's deal goes through, five national cell phone carriers
will remain in the United States supporting two major wireless
standards: GSM and CDMA. That technology split could hamper further
industry consolidation in the short term, according to analysts, who
noted that network interoperability played a key role in a reported
bidding war that erupted over AT&T Wireless.

"It's so much easier to combine networks that use the same cell phone
standard...It played a role in Cingular Wireless' decision" to pick up
AT&T rather than another competitor, said Joe Laszlo, Jupiter Research
analyst.

If Cingular's deal goes through, five national cell phone carriers will
remain in the United States supporting two major wireless standards: GSM
and CDMA.

Bottom line:
The incompatible back-end technologies could make it difficult for
would-be partners to find a match.

GSM (Global System for Mobile Communications) is the world's most
popular cellular standard, running about 70 percent of the world's
billion plus cell phones. Qualcomm's CDMA (code division multiple
access) trails with about 20 percent of the market, mainly in the United
States, Canada and South America. The remainder run a mix of older
standards such as TDMA or GSM variants such as iDEN, which is used by
Nextel Communications.

In the United States, Cingular, AT&T Wireless and T-Mobile run GSM
networks, while Verizon Wireless and Sprint PCS use CDMA.

Interoperability between standards is expected to arrive eventually with
so-called third-generation (3G) wireless data networks that carry data
as well as voice. Widespread adoption of 3G could takes years, however,
complicating short-term merger plans and effectively ruling out
combinations that would marry GSM and CDMA networks, analysts said.

By buying like-minded network operators, cell phone service providers
avoid numerous pitfalls, such as forcing subscribers to carry multiple
cell phones or to face limited range. It's easier to maintain a network
with just one standard than one with three or, in the case of Cingular
Wireless, four different standards. It's also less costly for carriers
to upgrade compatible networks for wireless broadband and other pending
3G services.

The AT&T Wireless/Cingular deal raises the possibility of future
mergers, which will partly hinge on cell phone standards. Likely
candidates for a buying spree in the United States are U.K. telephone
giant Vodafone, a GSM provider that reportedly bid on AT&T Wireless.

Vodafone took part in the bidding for AT&T Wireless, partly out of
concerns over its own standards problem. It owns a large percentage of
CDMA-backer Verizon Wireless. Vodafone reportedly pursued AT&T Wireless
after an unsuccessful attempt two years ago to pressure Verizon Wireless
to change cell phone standards.
Room to roam
Having lost out in the bidding for AT&T Wireless, analysts said
Vodafone's only real alternative would be T-Mobile USA, a GSM carrier
that's owned by Vodafone's European rival Deutsche Telecom. A Vodafone
spokesman had no comment.
Rumors have swirled that Verizon Wireless will counter the Cingular/AT&T
deal by buying Sprint PCS, which, like Verizon, uses CDMA.

But Laszlo said with the U.S. cell phone population set to grow by 50
million in the next three years, there's ample opportunity for Verizon
to continue capitalizing on its status as the largest U.S. cell phone
service provider, presumably with the farthest reaching network.

"Verizon has been growing amazingly well," he said. "Buying another
carrier for their spectrum and subscriber base is much more expensive to
do than grow organically."

Cingular co-owner SBC Communications will be responsible for
contributing $25 billion toward the AT&T Wireless purchase, while
partner BellSouth is on the hook for $16 billion. If the deal closes at
the end of the year as expected, SBC will continue to own 60 percent of
Cingular, while BellSouth's share remains at 40 percent, executives
said.

AT&T Wireless and Cingular have 46 million subscribers between them.
Should the deal close, the combined entity would unseat Verizon
Wireless, which has 36 million subscribers, as the No. 1 U.S. cell phone
service provider slot.
"Hey Verizon, can you hear us now?" AT&T Wireless Chief Executive
Officer John Zeglis said during a conference call following the deal's
announcement. Zeglis added that he's likely to resign after the deal
closes.

The hyper-competitive nature of the cell phone industry, where major
markets have nine or more competing carriers, will help the deal pass
regulatory muster, Jupiter's Laszlo said.

Although the deal reduces the number of cell phone rivals in the United
States, analysts said it will likely do little to ease competition in a
market where up to nine different carriers are battling for customers in
major cities, Sigman said.
"There will continue to be price pressures" and continued cuts to the
price of making a cell phone call, Sigman said. "We've (only) gone from
six national carriers and two or three regional niche players in each
market down to five national carriers."

http://news.com.com/2100-1039-5160724.html

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