Mannesmann buy could put wireless company in AT&T's league

Suddenly one of the world's biggest proponents of wireless technology is also one of its largest communications companies.

Suddenly one of the world's biggest proponents of wireless technology is also one of its largest communications companies.

With its planned acquisition of German media conglomerate Mannesmann, British wireless carrier Vodafone AirTouch has catapulted into the realm of the global super carriers.

The combination Vodafone AirTouch-Mannesmann results in a company with more than 42 million subscribers and strong wireless assets in Europe, Asia and the United States, according to market research firm Current Analysis.

Vodafone's newfound super-sized designation--for a company that is highly committed to wireless for voice and Internet traffic--goes a long way toward validating wireless technology as a viable alternative to traditional wired communications services.

World's biggest mergers
The Mannesmann-Vodafone AirTouch deal would be the largest merger ever, followed by the pending merger between Time Warner and AOL.
Target Acquirer Value ($billion)
Mannesmann Vodafone 226.10**
Time Warner AOL 151.80**
Sprint Corp. MCI Worldcom 129.00**
Warner-Lambert Co. Pfizer 87.91*
Mobil Corp. Exxon Corp. 86.40
SmithKline Beecham Glaxo Wellcome 78.38**
Citicorp Travelers Group 72.56
Ameritech Corp. SBC Communications 72.36
GTE Corp. Bell Atlantic 71.32**
Telecommunications Inc. AT&T Corp. 69.90
Note: The value for the top three mergers are based on yesterday's closing prices and include assumption of debt and preferred share purchases. All other merger valuations are based on prices at the time of merger announcement.

**Deals not yet effective.
*Deal not yet announced and terms based on industry sources.

Source: Thomson Financial Securities Data

"It's a very logical business move because wireless is a viable contender for communication leadership," said Ray Jodoin, senior wireless industry analyst at Cahners In-Stat Group. "This is just the first in a number of rude awakenings for the wired telecommunications industry."

Vodafone AirTouch-Mannesmann, which claims a combined value of about $216 billion, now tops the $162 billion market capitalization of the "grande dame" of the communications business, AT&T, as well as upstart giants such as MCI WorldCom, which is worth $126 billion. Japanese communications company Nippon Telegraph and Telephone (NTT) is valued at $248 billion, still topping Vodafone--at least for now.

MCI WorldCom's purchase of Sprint, the world's largest deal at the time, was driven by MCI's desire for Sprint's growing wireless assets. Some industry observers viewed the move as an admission by MCI executives that owning just wireline assets alone would leave a huge strategic hole in the company's portfolio.

"There are some significant changes that are going to be felt in the next few years," Cahners' Jodoin said. "As wireless and the Internet converge, the whole wired infrastructure is going to have to be re-thought out. It's not that one is better than the other, it's just that once you remove the encumbrances of wires, it just makes things easier."

Analysts have trumpeted the ongoing growth of mobile technologies in recent years, particularly for voice calls. But complaints from many critics and consumers about the reliability, sound quality and price of wireless connections threatened to force mobile systems into a back-seat role to traditional fiber-optic, copper-wire or cable network operators.

Instead, analysts and financial markets are valuing wireless companies as highly as some of the world's most entrenched traditional carriers.

"There's a prevailing belief that wireless, once everything becomes (Internet Protocol)-based, can do everything and more that wires can," said Bryan Prohm, a wireless industry analyst at Dataquest.

But Prohm questions whether Vodafone AirTouch's strategy will shift as it gains size.

"In the short term this is just a mobile (voice) play. Vodafone is looking to become the world's first de facto global mobile phone service provider," Prohm said. "In the long term, I think it'd be a detriment to just rely on one technology."

Mannesmann offers a variety of traditional wired communications and Net access services as well.

Regardless of whether wireless technologies become the primary avenue for end users to get their voice, video and data services, analysts expect the Vodafone AirTouch-Mannesmann deal to touch off a round of consolidation and competitive scrambling.

"All European wireless players must reassess their current standing," according to the Current Analysis report. "The key question is to decide on a position for future growth. Do they position themselves as an aggressor looking to develop a pan-European wireless network, or as a potential acquisition target for someone else?"