AT&T Wireless Services Inc, Sprint Corp's PCS Group and other US mobile-telephone companies may seek merger partners to cut costs and lift profit amid slowing customer growth, investors and analysts said.
With almost 50 percent of Americans using cellular phones, carriers are reducing prices by as much as a third to lure subscribers. That's trimming revenue, delaying profitability and making it harder for money-losing companies to repay billions of dollars in debt they've taken on to upgrade networks.
Acquisitions might eliminate some smaller carriers, such as Deutsche Telekom AG's VoiceStream Wireless Corp, easing price competition and helping stem customer defections, investors said.
A merger of rivals using the same transmission technology, such as Verizon Wireless Inc. and Sprint PCS, would help avoid duplicative spending to improve networks for new services.
"There are too many players, too much competition and not enough return on the capital to justify the amount of money that's been spent on upgrades," said Jim Lyon, a portfolio manager at Los Angeles-based Oakwood Capital Management, who's shunning wireless stocks.
"There's likely to be consolidation." Six US mobile-phone companies sell service nationwide.
Shares of AT&T Wireless, the third-largest mobile-phone company, declined 38 percent in the first quarter and Sprint PCS, the fourth biggest, shed 46 percent.
AT&T Wireless, with US$6.3 billion in debt, had a fourth- quarter loss from continuing operations of US$355 million. Sprint PCS, with US$15.6 billion in debt at year's end, had a loss of US$328 million. Verizon Wireless, the largest carrier, and No. 2 Cingular Wireless are ventures without public shares. Parent companies have put on hold plans to sell shares in both ventures.
US companies probably will add 17 million subscribers this year, down from 21 million last year, said Michael Mahoney, a managing director at EGM Capital, which manages US$1.1 billion.
Executives or spokesmen at Sprint PCS, Verizon Wireless Inc.
and rivals said merger discussions are likely. None said any talks were in progress.
"Everyone expects consolidation at the national level," Leap Wireless International Inc President Susan Swenson said in an interview. Her company sells local-phone service in midsize US communities.
The likeliest combinations are among carriers using similar transmission systems, such as Sprint PCS and Verizon Wireless, which send voice and data using code-division multiple access technology, analysts said.
"We're operating under the assumption that we will continue to be a successful player in the industry as a stand alone," Sprint PCS President Chuck Levine said. He conceded "there's certainly the possibility [rivals] will be inclined to merge."
Verizon Wireless spokesman Jim Gerace said ``we don't have a gun to our head'' to merge, though he wouldn't rule out participating in transactions.
Another transaction might involve AT&T Wireless, Cingular and VoiceStream, all users of a transmission system known as the global system for mobile communications that gives customers greater international access. Verizon Wireless and Sprint PCS's system is incompatible.
Technology lines
"It would make it easier to integrate, and easier to serve both companies' customers" if companies group along technology lines, said Leap's Swenson.
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