Commentary: NTT could invigorate AT&T Wireless

Financial support from NTT DoCoMo would likely work as a balm on AT&T's operational and public image wounds.

3 min read
By Phillip Redman, Gartner Analyst

AT&T continues to hold a special place in the hearts and minds of consumers and industry analysts as it copes with increasing challenges in a new, deregulated world.

See news story:
AT&T, NTT deal could jump-start wireless Web
Financial support from NTT DoCoMo would likely work as a balm on AT&T's operational and public image wounds. With AT&T's stock price down 69 percent from a 52-week high of $61, a wireless tracking stock under its IPO price, long- and short-term debt of $57.7 billion, and increasing pressure from stockholders, NTT's interest will likely serve AT&T as a much-needed cash infusion.

For NTT, this minority stake represents another step toward significant global expansion. Best known for its popular mobile Internet access service, i-mode, NTT has already cut a deal with Taiwan's fourth-largest mobile firm, KG Telecom, to buy a 20 percent stake. NTT has invested in other service providers around the globe and has long sought an investment in a U.S. wireless carrier.

Through its investment in AT&T, NTT would gain a valuable foothold in the U.S. market. Although there are high-growth areas for communications services around the globe, particularly in Europe, Asia and Latin America, the United States remains a desirable market for any international carrier because of its comparably lower subscriber penetration rate of only 39 percent at year-end 2000 and its potential for high revenue.

Gartner believes the pending deal will be approved by the U.S. Federal Trade Commission, based on precedents. Stakes purchased by foreign government-owned companies typically have won approval when they amounted to 25 percent or less, and NTT is seeking less than that. For example, France Telecom and Deutsche Telekom, both of which are majority-owned by their governments, once held separate 25 percent stakes in Sprint. Meanwhile, Deutsche Telekom is relying on the 1997 World Trade Organization agreement to win approval of its purchase of U.S.-based VoiceStream Wireless.

Equally important is AT&T's announcement that it will overlay its time division multiple access network with GSM/general packet radio service for higher-speed data services (up to 115 kbps) in 50 top markets such as New York City, by year-end 2001--an aggressive estimate for a commercial launch. In addition, AT&T will likely use the i-mode service, which represents a significant blow to WAP in North America.

AT&T also plans to launch EDGE (enhanced data rates for GSM environments) for services running at up to 384 kbps--and eventually W-CDMA (wideband code division multiple access). AT&T expects its partners and affiliates to follow suit: Rogers AT&T Wireless in Canada has already announced its commitment to the technology. AT&T will need additional spectrum for W-CDMA, as well as to support multiple air interfaces at consistent quality. It will pursue this in upcoming FCC wireless auctions in the first quarter of 2001.

In Gartner's opinion, NTT's stake in AT&T will do little for either company, or end users, through year-end 2002. For now, it simply provides an international presence for NTT and a much-needed capital infusion for AT&T. AT&T will go from being a dominant wireless player to a regional player in a world economy dominated by leading international telecom giants such as NTT, Telefonica, KPN and Vodafone.

But as the new technology is launched in the next 18 to 36 months, AT&T will have the opportunity to again be a contender, offering global roaming and better economies of scale for lower-cost handsets.

(For related commentary on Japan's emerging technology leaders, see TechRepublic.com--free registration required.)

Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.