AT&T: Telecom consolidation 'logical,' inevitable

"I think it is logical to assume you're going to have two or three and certainly not six and seven competitors in any marketplace," says AT&T CFO John Stephens.

The wireless industry is likely to shrink down to two or three players, roughly half the roster across the U.S. today, according to an AT&T executive.

John Stephens, CFO of AT&T, spoke at a Nomura investment conference on Wednesday. Stephens was asked about consolidation in light of AT&T's failure to acquire T-Mobile. Regulators panned AT&T's T-Mobile acquisition over competitive worries.

Stephens said:

I think it is just logical that the industry is going to consolidate in some form or fashion. I think the marketplace has spoken to that with what it has done to pricing in the valuations on some of the companies. From an economic perspective and a highly CapEx-intensive business, I think it is logical to assume you're going to have two or three and certainly not six and seven competitors in any marketplace. So I think consolidation is logical.

Will the government allow it to happen? They have certainly spoken to us on that as a participant in that from acquiring spectrum and more customers. They spoke to us last year. Whether they will let it go at other levels or at a lower level or smaller deals, we will leave that to the FCC.

The argument from Stephens rhymes with what is usually heard from the airline industry. The theory: There can only be a few players given the high costs. In the wireless industry, spectrum is limited and it's not cheap to build out a network.

However, the wireless industry appears to have some pricing power. Stephens noted that AT&T has been able to tweak its pricing plans and raise its upgrade fees. Verizon also instituted an upgrade fee .

Stephens also talked profit margins:

We are going to grow margins year-over-year. Last year's margins were about 38.5 percent in wireless and our guidance says we are going to grow. I have said publicly, and some of my peers and coworkers have said publicly we expect we are going to have north of 40 percent margins this year in our wireless business and still believe that.

Stephens didn't put a timeline on wireless consolidation, but it's hard to argue against the idea. All industries boil down to two or three players eventually. The big question for wireless consolidation is timing. When will get to two or three carriers? And if so will this consolidation lead to price increases or will the mergers occur after wireless services is commoditized?

This story was first published as ZDNet's Between the Lines.

About the author

    Larry Dignan is editor in chief of ZDNet and editorial director of CNET's TechRepublic. He has covered the technology and financial-services industries since 1995.

     

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