Fear. mergers, and cell phones
This week we've seen a classic case of the anxiety in consolidating industries that spurs (sometimes foolish) acquisitions.
It all started with Cingular Wireless's announced acquisition of AT & T Wireless, a move that made that company the #1 cell phone company, leapfrogging past #2 Verizon Wireless (co-owned by local phone company Verizon Communication and international cell phone leader Vodafone). That led to wireless industry #3 Sprint's recent offer of $35 billion to buy out #5 Nextel. As a Wall Street Journal article "A Telecom Frenzy Over Sprint", 12/14/2004) puts it, "one reason for the Sprint-Nextel move is the two companies' shared fear of being left behind by the cellphone industry's two giants, Verizon Wireless and Cingular Wireless." Even with the merger, Sprint would still be #3, though a bigger #3.
Now Verizon is rumored to be planning to make an even bigger offer for Sprint. With that acquisition, Verizon can in turn leapfrog Cingular again, into a dominant position in the industry. The whole situation is not unlike the Oracle-PeopleSoft-J.D. Edwards big fish-little fish move, on just resolved this week.
Technologically, Verizon and Sprint's wireless services are a good fit; they both use the same transmission standard (CDMA). Nextel, however, uses its own proprietary standard (iDEN), which is incompatible with CDMA. One thought was that the Sprint acquisition would ease the changeover to the after CDMA standard, something NexTel probably has to do in any case.
An offer for Sprint involves more than wireless, as Sprint owns some land lines in various regions of the country and also has a long-distance service. Verizon, the WSJ article points out, would probably want to and have to divest these assets if it acquires Sprint. One candidate for the land lines has been identified as Qwest, the smallest of the Baby Bell local phone companies.
Nextel, meanwhile, is an interesting story. The company looked doomed up until a few years ago, but management has turned it around and made it into the most profitable company per subscriber in Ethernet US cell phone industry. Clearly, the idea is that in the long run, and with the cost of an expensive tech standards conversion ahead (estimated at $3 billion) it was safer to get acquired.
Another candidate for acquisition may be Alltel, which owns wireless and landline services in some locales. The pressure to make deals has suddenly been ratcheted up, and companies fear there may be no more assets to acquire after the next few deals go down.
7:43:56 PM 
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