Global wireless wars edge closer to home

Vodafone Group's bid for AirTouch marks a new step forward in the wireless phone market, a possible precursor to growing overseas interest in U.S. firms.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
Britain-based Vodafone Group's bid for AirTouch Communications today marks a new step forward in the international wireless phone market, a possible precursor to growing overseas interest in U.S. firms.

AirTouch confirmed this morning that it had received an offer from Vodafone, the U.K.'s leading mobile phone company. The bid apparently was timed to derail talks with Bell Atlantic, which has reportedly offered AirTouch a stock swap deal valued at close to $45 billion.

This is not the first time Vodafone, which has invested alongside the San Francisco company in several overseas markets, has wooed AirTouch. Talks between the two companies were called off 18 months ago without an agreement.

The British company's interest highlights AirTouch's successful transformation from a domestic wireless carrier into the one of the larger international wireless companies. The bid may also foreshadow other overseas firms' interest in U.S. companies, analysts said.

"I expect to see more interest as more people get to travel, and more licenses come up for sale," said Ian Gillot, a wireless analyst for IDC. "It's an attractive market."

While Vodafone may be the most likely international suitor for AirTouch, other large international phone companies like British Telecom, Deutsche Telekom, or France Telecom could enter the bidding war in an effort to break into the U.S. market and expand their own European holdings, Gillot said. MCI WorldCom, which has focused heavily on building an international network, also could step in with its own attempt to pick up a wireless component, he said.

International trendsetters
Although the prospect of a foothold in the U.S. market is attractive, Vodafone's interest in AirTouch is tied to the company's rapidly growing overseas markets, analysts said.

According to AirTouch's own figures, U.S. wireless revenue for the company grew by only 9 percent in the third quarter of 1998, compared to 43 percent overseas. Subscriber figures grew by 22 percent in the United States in the third quarter, while overseas figures grew 88 percent.

Those figures describe explosive growth in several of AirTouch's markets. The company's Italian partner, in which it owns a near-16 percent stake, has added a total of 2 million subscribers in the past two quarters.

Vodafone and other European companies are interested in building out a European network, in much the same way Bell Atlantic and other U.S. telcos want to create a coast-to-coast system. European companies want to be able to offer preferential roaming charges through local subsidiaries, if not a continent-spanning service area, when their customers travel around the continent.

Most of European countries also use the GSM mobile phone standard, which ensures that customers' phones will be compatible across the continent. That standard is not as common in the United States, but most of AirTouch's overseas sister companies do use GSM, a company spokesman said.

Vodafone is a likely candidate for creating this kind of pan-European network. It is Britain's largest mobile phone company, but also has considerable investments in France, Greece, Sweden, and the Netherlands. Adding the countries where AirTouch has a presence would give the merged company a network that spanned Europe and would establish it as a wireless leader on the continent.

AirTouch has investments in mobile companies operating in Belgium, Italy, Poland, Portugal, Romania, and Spain. Vodafone also brings to the table Australian and Hong Kong holdings, while AirTouch has operations in Japan, South Korea and India.

On the home front, a Vodafone deal could wind up being less advantageous to U.S. consumers than a sale to Bell Atlantic.

A nationwide network created by Bell Atlantic would compete head to head with Sprint and AT&T, likely driving down long distance mobile prices and helping push long distance consumers onto wireless networks.

A Vodafone deal would create an attractive network of overseas properties, but would leave AirTouch's U.S. coverage spotty. Some analysts have speculated that Bell Atlantic and Vodafone could split up AirTouch properties, however, with the Baby Bell taking U.S. service areas, while the British firm takes over overseas investments.

Much talk, no cigar?
Despite the excitement surrounding the newly-created bidding war, some analysts say it may yet come to nothing.

"I'm not sure there's a dying need with AirTouch to find a buyer," Gillot said. The company is easily big enough to survive on its own, and has proven to be a successful independent player, he added.

Both bids have their down sides. Bell Atlantic is going through another merger with GTE, and a combination of all three companies would force the new entity to a handful of duplicated wireless markets in order to meet regulatory concerns. Some institutional investors also have criticized Bell Atlantic's $45 billion stock offer, saying it does not contain as high a premium as other telecom companies have paid for similarly-sized mergers.

Several complicated accounting questions also have helped to hold up the deal, according to some reports.

For its part, Vodafone has shown only lukewarm interest in entering the U.S. wireless market that is already far more mature than the growing overseas markets. That company's stock has also risen sharply following news of recent subscriber gains, setting up the possibility that any stock swap deal could lose value in future months.

In the end, AirTouch may decide that it can achieve its own goals better as an independent company, some analysts said. "If we don't see something here, then we might see them on a more aggressive acquisitions strategy of their own going forward," Gillot said.

The company has proven the strength of its international wireless investment strategy, but has also talked about getting into the traditional telephone business, possibly as a competitor to one or more of the dominant local phone companies.