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Little VoiceStream draws giants' eyes

With a freshly minted national reach, the small wireless carrier is being eyed by some of the biggest communications companies in the world.

There's a new belle at the telecommunications merger ball, and her name is VoiceStream Wireless.

With a freshly minted national reach, the small wireless carrier is being eyed by some of the biggest communications companies in the world. From Deutsche Telekom to Japan's NTT DoCoMo, companies are circling with an itch to acquire the small firm's newfound ability to reach a vast majority of potential U.S. wireless subscribers.

VoiceStream Wireless at a glance

HQ: Bellevue, Wash.  
CEO: John William Stanton  
President: Robert Stapleton  
Ticker: VSTR  
Exchange: Nasdaq

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Bloomberg (7/13/2000)
The interest is a testament to VoiceStream's success in building a national brand out of a series of small consolidations in the past year, analysts say. Although the company doesn't yet have anywhere near the customer reach of Verizon Wireless, Sprint PCS or Nextel Communications, it owns the spectrum and much of the infrastructure to get there.

Analysts said there aren't any companies that stand a good chance of replicating this feat, making VoiceStream a valuable target.

"At this point it would be difficult to do what they've done without starting from scratch," said WR Hambrecht analyst Peter Friedland. "There's not that much left out there to piece together."

It also underscores the rampant interest in all things wireless. The consolidation drive is spreading across the wireless industry, as companies race to gain as large a footprint as possible before the market matures. Analysts estimate that more than 1 billion cell phones will be in use worldwide within about four years, eclipsing even the ubiquitous television in number of units sold.

The tapestry of coverage VoiceStream has woven in the past year has placed it in the same league--if not quite the same ballpark--as the wireless giants that are quickly establishing their dominance in the U.S. marketplace.

VoiceStream was spun off from parent Western Wireless just last year. Since then, it has pursued a smaller version of the consolidation trend led by the mergers of Bell Atlantic and Vodafone's mobile properties and from the combination of SBC Communications and BellSouth's wireless divisions.

The company is headed by industry veteran John Stanton, one of the original co-founders of McCaw Cellular and of the two companies that created Western Wireless in 1994. Stanton's fingerprints have been on a series of consolidation bids since that time.

In a pair of acquisitions in the past year, VoiceStream bought Omnipoint and Ariel Communications for a total of about $3.5 billion, a tiny sum in the larger scheme of wireless mergers. But the two purchases gave it licenses to the wireless airwaves that cover about 80 percent of the country and to infrastructure that already reaches about 30 percent of U.S. residents.

That's far behind rivals like Nextel, which owns rights to nearly 100 percent of the territory in the United States for its service and has built infrastructure for about 70 percent of it. But it's a significant draw for any company that wants a solid wireless foothold in the United States.

That's where the interest is heating up. Sprint, AT&T, Verizon, BellSouth and SBC are the only major telecommunications companies that have a claim to reaching a full U.S. wireless presence. Virtually every other giant, both in the United States and overseas, is salivating for a piece of this young market, where consumer adoption still lags markets in Asia and Europe.

VoiceStream also has an advantage over other takeover targets like Nextel or Sprint. It operates the GSM (Groupe Speciale Mobile) wireless technology, which is the dominant standard in Europe and many regions in Asia but is relatively uncommon here. That could give companies like Deutsche Telekom and NTT DoCoMo an advantage in streamlining operations and allow customers to roam easily from country to country using the same phone they've purchased in the United States.

VoiceStream executives did not return calls for comment.

Some analysts are still skeptical about what appears to be an impending Deutsche Telekom bid for VoiceStream.

The German company has a history of leaking interest in companies and then withdrawing before making an official, public offer. Some analysts say the company may be playing with market expectations in an attempt to depress the asking price for Sprint.

"(Deutsche Telekom) has a poor track record of making 'unofficial' bids and then walking away," ABN AMRO analyst Kevin Roe wrote in a research report yesterday. "Some believe that DT is practicing some 'game theory'--floating this bid idea to the press with the intention of putting price pressure on (Sprint)."

But Roe and many others say they think Telekom's interest in VoiceStream is genuine, and perhaps imminent. Some say that could lead to a bidding war over the property, much as Bell Atlantic's interest in AirTouch Communications in late 1998 led Vodafone to make its own eleventh-hour bid for that company.

WorldCom still badly needs a wireless partner, these analysts note. France Telecom is on an international expansion bid, with recent purchases in the United Kingdom bolstering its westward drive. Even SBC may step in to fill out its GSM territory, some say.

"Given that DT is stepping up to the plate on the acquisition front, I've got to think that's going to alert other potential buyers," WR Hambrecht's Friedland said.

If any of these deep-pocketed buyers do step forward, the purchase would help boost GSM's profile in the United States. That's not necessarily good news for Qualcomm, which has relied on the U.S. market to carry a large part of its competing CDMA technology.

But most analysts say the U.S. market is already technologically stable. A vitalized VoiceStream could attract more people to GSM phones and help improve the quality of GSM phones and service, but the carriers that use CDMA already aren't likely to change midstream, they say.

"I think that's overplayed," said The Yankee Group's Mark Lowenstein. "Qualcomm will get revenues from almost any deployment of (next-generation) wireless technologies."