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Wireless deals put pressure on competitors to grow

Bell Atlantic and Vodafone cement their joint venture, creating a mobile phone company that joins Sprint and AT&T at the top of an industry that until recently was split into regional fiefdoms.

After years of fragmentation, the wireless phone industry is settling temporarily into a "big three."

Giants Bell Atlantic and Vodafone cemented their joint venture today, creating what ultimately will be a 23 million-customer mobile phone company, far outstripping its nearest U.S. rival. The company will be dubbed "Verizon Wireless," taking the name of the new company created by the pending merger of Bell Atlantic and GTE.

Wireless leaders
Six major U.S. carriers with nationwide networks have emerged, largely the result of recent mergers and partnerships within the industry.
Carrier Subscribers
Verizon Wireless 23 million*
AT&T Wireless 12 million
SBC Communications 11.2 million
Sprint PCS 5.9 million**
Nextel Communications 4.9 million
VoiceStream Wireless 1.8 million***
*after Bell Atlantic-GTE merger closes
**includes Sprint PCS affiliates (5.7 million without)
***does not include subscribers from Ariel Communications acquisition

Source: Companies

The company joins Sprint and AT&T at the top of an industry that until a few years ago was split into regional fiefdoms. The three giants can offer national coverage and pricing plans that smaller players can't match. But analysts say there's still a little more room at the top.

"There will probably be a core group of five or six national players," said Eric Melloul, a financial analyst with Argus Research. "I think you'll see the consolidation continue."

The wireless industry has helped lead the telecommunications industry through an intense period of consolidation in the past year, as companies have sought to create a national footprint in the burgeoning U.S. mobile phone market. The firms are looking at predictions that close to a billion wireless phones will be in use by 2003, passing even televisions in terms of annual sales.

The U.S. market has lagged far behind the wireless industry in parts of Europe and Asia, both in technology and in penetration. Analysts say that gap has stemmed partly from the way policy-makers decades ago handed out the crucial wireless spectrum needed to carry cellular phone signals.

In most overseas markets, companies were able to create national footprints immediately. In the United States, most of the local phone companies covered their own regions, while dozens of smaller companies bought individual regional licenses and created local networks. This created a patchwork system that made it difficult to jump-start the industry on a national basis, many say.

AT&T was the first to create a national footprint by buying a series of these smaller companies, while Sprint largely built its national footprint itself. Bell Atlantic and Vodafone--which bought AirTouch Communications just a year ago--have crossed into the top tier with their own merger strategies.

"It's like putting a big eggshell together after 15 years," said Thomas Friedberg, a Janco Partners analyst.

The consolidation sharply limits the number of wireless companies in the market, making it harder for tiny companies to compete with the giants. But federal regulators are nevertheless giving the trend an enthusiastic green light.

Reaching the masses

Analysts say this is simply a bow to market realities. The giants will all have the muscle to compete against each other, much in the way that price wars between the big three long-distance companies drove down consumer costs in that industry during the past decade.

Several other companies are on the verge of creating networks large enough to compete with the new wireless trio.

SBC Communications and BellSouth are widely believed to be discussing a merger of their wireless properties, just as Vodafone and Bell Atlantic have done. This would create a fourth giant with its own close relationships with customers in much of the country that would have the ability to take advantage of local phone business to bundle services.

Nextel Communications already has a coast-to-coast network, although it trails the three larger companies in coverage. It has made its name selling services to business customers but is making a more concerted move into the consumer market.

Finally, upstart VoiceStream Wireless has been on an acquisition binge of its own, buying regional carriers Aeriel Communications and Omnipoint. That gives the company a solid base of several million subscribers from which to take on the larger players, analysts say.

The new "big three"--AT&T, Sprint PCS and the newly named Verizon Wireless--have an advantage out of the gate in terms of marketing and coverage. All three can offer the popular "one-rate" plans that include national service areas and free long-distance service thrown into the mobile phone bills.

The Bell Atlantic-Vodafone Verizon venture has an expensive marketing campaign ahead of it to familiarize potential customers with an unfamiliar brand, however. The company also will have to merge the two companies' billing systems and day-to-day operations, a task that analysts say could present significant hurdles.

But with 23 million subscribers already on tap once the GTE and Bell Atlantic merger closes, the company will have a huge customer base to work from and will be able to lower costs for equipment and marketing, analysts say.

"They needed this to offer the same kind of nationwide plan that AT&T and Sprint can," said Tole Hart, a Dataquest analyst.

The new company is scheduled to hold a press conference tomorrow in which it will release details for its national pricing plan.