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Wireless players seek national coverage to survive

As the wireless market slowly comes to resemble the high-stakes long distance market, wireless players need to establish a presence on both sides of the nation to be competitive, analysts say.

Wireless phone companies believe in manifest destiny.

For phone companies that want to survive, this is a business necessity. The wireless market is slowly coming to resemble the high-stakes long distance market--and to be competitive, wireless players need to establish a coast-to-coast presence, analysts say.

As a result, regional companies like Bell Atlantic and Vodafone AirTouch are scrambling to piece together nationwide networks. The goal is to achieve nationwide coverage before the next big boom in wireless phone usage--long distance service and Net access.

"If you want to be a big carrier, you have to put yourself in the position of having a national network," said Bryan Prohm, a senior analyst covering the wireless industry for Dataquest.

The pressure on wireless carriers is intensified by the market's move toward packaging services like long distance, local phone service, wireless, and Internet access--a strategy led by AT&T. The big local phone companies in particular want to make sure they can compete not only in their own limited territories, but nationwide as AT&T slowly encroaches on their turf with its own local phone offerings, and while they fight for the right to offer long distance services.

There are only a few national wireless networks operating today--and analysts say there is only room for a few more. AT&T, Sprint, and Nextel all have their own nationwide networks, which allows them to offer relatively low long distance fees and seamless service to customers who travel outside of their home town.

Bell Atlantic and Vodafone AirTouch, each of which have solid regional networks, offer national service in partnership with other carriers. But they must pay other carriers anytime one of their customers crosses over to another network--an awkward state of affairs for companies with national ambitions.

On the far end of the spectrum lies MCI WorldCom, which has made several abortive attempts at entering the nationwide wireless game, but as yet remains without its own wireless network.

The need to go national
Once a mosaic of geographically dispersed companies, the wireless phone market is quickly turning into something that looks more like the traditional long distance market--with national coverage, national marketing campaigns, and a few big players, analysts say.

AT&T has built its own national network by acquiring smaller companies along the way, while Sprint and Nextel independently have built out their own networks. These companies now offer long distance, as well as the ability to use their phones for a low price across the country.

Most of the big regional companies, such as Bell Atlantic and Vodafone AirTouch, also offer nationwide "roaming" in partnership with other companies outside of their coverage area. To most consumers who don't care who owns the network when they place a call, the difference is minimal.

Yet for businesspeople who travel frequently and are heavy users of wireless phones, the prospect of dealing with a single phone company is attractive. Analysts say AT&T and Sprint have won a disproportionate share of this lucrative customer base since going national.

"These are the customers they actually make money from," said Elliott Hamilton, director of U.S. telecommunications consulting at the Strategis Group. "Probably 80 percent of their profits come from 20 percent of their customers."

This disparity could become even more glaring as wireless phone operators position themselves as replacements for traditional long distance service and move toward offering high-speed Internet connections over the next few years, Hamilton added.

The benefits of a national network are already translating into subscriber growth. AT&T maintains a lead in the U.S. market with close to 11.5 million subscribers. Sprint is still riding high on a growth spurt of its own, adding 617,000 subscribers last quarter to reach a total of about 4 million. Vodafone AirTouch and Bell Atlantic each are larger, respectively with 8.9 million and 6.6 million subscribers, but each added less than 300,000 subscribers last quarter.

Wall Street also has reacted positively to companies with a nationwide presence. Nextel, hardly as much of a household name as AT&T or Sprint, has seen its stock price nearly double in the last several months as it has ramped up geographic and data-focused expansion plans.

Consolidation central
The last year has seen considerable shifts in control of the wireless market. British-based Vodafone merged with AirTouch early in the year, while smaller players VoiceStream and Omnipoint agreed to join forces late in June, creating a new coast-to-coast company.

The biggest deal yet to be closed is one that hasn't happened: MCI WorldCom's merger or partnership with any significant wireless phone company. The long distance carrier has no wireless phone network of its own--a critical gap, many analysts say. The company has approached Nextel several times but the companies have never been able to agree on an adequate price.

A partnership between Bell Atlantic and AirTouch has long topped analysts' most-likely-to-succeed lists, however. The two companies' networks are complementary, using similar technology with little overlap in service.

Vodafone's victory over Bell Atlantic in the bidding war for AirTouch last year sparked some acrimony between the two companies. Bell Atlantic sued Vodafone shortly after its merger was completed, and quickly moved to break up a small wireless joint venture between the two companies.

That didn't dissuade Vodafone and AirTouch executives from seeking to close the wireless open wound. In interviews shortly after the merger closed, the chief executives of both firms repeatedly said one of their top priorities would be to strike some new agreement with Bell Atlantic.

"We've been talking with them on and off for some time," said Jonathan Marshall, a Vodafone AirTouch spokesman. "This is not something we're trumpeting as near resolution."

For its part, Bell Atlantic is not commenting on any talks with Vodafone AirTouch. Both companies say they would like to be able to offer national coverage in-house, but say the lack of such a service isn't yet crippling.

"We could have size and scope efficiencies if we had our own national network," said Andrea Linskey, a Bell Atlantic spokeswoman. "Is it stopping us from having a successful business? No."