Wireless firms seek worldwide empires

Wireless phone companies like Vodafone AirTouch are playing a high-stakes acquisition game, desperately seeking to grab global markets before their competitors do.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
Wireless phone companies are playing a high-stakes acquisition game, desperately seeking to grab global markets before their competitors do.

Competition in the wireless world has sparked some of the biggest corporate mergers in history, with MCI WorldCom's record-breaking $129 billion deal for Sprint exceeded only by Vodafone AirTouch's hostile $137 billion bid today for German wireless firm Mannesmann.

Companies are looking to control a wireless market that analysts expect will include 1 billion cell phone users by 2003. The explosive growth comes as people around the world increasingly use mobile phones as their primary means of local and long-distance communications.

A new generation of Internet technology promises new revenue streams for wireless players, and is also behind much of the industry consolidation. Wireless Net access over cell phones is almost ready for the mass market, and wireless connections may soon be a viable alternative to a cable or high-speed dial-up modem.

"Wireless is experiencing its greatest growth ever in markets around the world, and it hasn't slowed down," said Elliot Hamilton, director of U.S. telecommunications consulting at the Strategis Group research firm. "People are seeing a lot greater future for these companies."

In the United States and Europe, cellular phone usage has skyrocketed in the past decade with an increasing number of consumers using mobile phones as their primary telephone line. More than 30 percent of U.S. homes, or about 88 million users, will have a mobile phone by the end of the year, according to market research firm Cahners In-Stat Group.

Overseas growth, both in developed and developing nations, is happening even more rapidly. BancBoston Robertson Stephens forecasts 1 billion worldwide users in 2003, a figure that has come to be widely accepted inside the industry. The Strategis Group predicts companies will be making close to $514 billion in revenue from wireless operations worldwide by then.

The expansion of consumer wireless voice services is spawning a land grab by carriers anxious to plant their flag before the competition does, analysts said.

"What's going on is that anyone can be reachable anytime, anywhere. So if I'm a carrier I see my customers traveling all over the world and I want to be able to serve them anywhere," said Ken Hyers, a wireless industry analyst at Cahners In-Stat Group.

Carriers try to avoid losing revenue when their customers travel beyond the reach of their networks, which has created a greater incentive for providers to buy other wireless carriers and form strategic partnerships.

"If my customers roam onto another network I have to negotiate roaming fees and give [the other carrier] a cut," Hyers said. "If I can own the entire network then I don't have to split that with anybody and I can offer lower rates because I don't have to pass those fees on to my customers."

Putting money up front

Date Companies Value Benefit
Nov. 1999 Vodafone -- Mannesmann $137 billion Could give Vodafone control of Europe's largest mobile firms
Oct. MCI WorldCom -- Sprint $129 billion Gives MCI Sprint's national wireless network
Oct. Mannesmann -- Orange $36 billion Gives German firm access to lucrative British market
Sept. Vodafone -- Bell Atlantic $70 billion Venture gives Vodafone coast-to-coast U.S. coverage
June Omnipoint -- Voicestream $4.6 billion Creates the ninth-largest U.S.-based wireless firm
Jan. Vodafone -- AirTouch $73 billion Creates the largest worldwide independent wireless company
Looking ahead, a new generation of Web-ready phones that offer quick surfing speeds are on their way out of the labs. That could open up entire new, highly profitable markets for the wireless companies, analysts say.

Vodafone bought U.S.-based AirTouch Communications late last year for $56 billion. In September, it inked a coast-to-coast deal with Bell Atlantic, the company it had beat out to buy AirTouch.

Now, Vodafone has set its sights on Mannesman, Germany's largest wireless carrier. Its initial $116.3 billion bid was rejected by the company, and today's "friendly" bid was also rejected, plunging Vodafone into a hostile takeover situation that will likely play out after the New Year.

"Vodafone's saying, 'We're going to be there first,'" Hyers said. "They're trying to snap up the deals first, before the competition gets too tough. If they don't do it now they may not be able to buy Mannesmann in a few years. Everybody's bulking up right now."

The world's telecommunications giants have also been busy. MCI WorldCom's takeover of Sprint was aimed in large part at acquiring Sprint's fast-growing mobile phone division. Local firms BellSouth, SBC Communications and Bell Atlantic have been quickly investing in properties in Latin America as that region's communications monopolies rapidly privatize.

"Some of the fastest growth in our wireless markets is taking place in our international operations," said Steve Fleischer, a spokesman for Bell Atlantic's wireless division. That company has wireless investments in Greece, Italy, the Czech Republic, Slovakia and Mexico, and works closely with both Vodafone and Mannesmann in some of those regions.

"We see international wireless communications as a significant growth opportunity," Fleischer said.

The recent string of deals also has the largest wireless carriers looking further overseas for future alliances. Analysts point to Europe, Asia and Latin America as markets ripe for continued consolidation.

"The consolidation in the U.S. is over…But internationally it's only just beginning," Hyers said."[Vodafone is] trying to become the Coca Cola of wireless. They want to be everywhere with one brand. It's the same everywhere you go, so you know what to expect."