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Rush for wireless airwaves may drive risky deals
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By Sinead Carew
NEW YORK (Reuters) - In the telecommunication industry's land grab for wireless airwaves, investors better brace for U.S. deals that are bewildering -- or worse.
To stay competitive with powerhouses Verizon Wireless and AT&T...
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By Sinead Carew
NEW YORK |
Fri Mar 18, 2011 12:15pm EDT
NEW YORK (Reuters) - In the telecommunication industry's land grab for wireless airwaves, investors better brace for U.S. deals that are bewildering -- or worse.
To stay competitive with powerhouses Verizon Wireless and AT&T Inc, smaller and mid-sized telephone companies are badly in need of more wireless airwaves to handle the rising Web traffic demands of smartphones and tablet computers.
That may leave operators little choice but to consider partnerships and full-fledged mergers. "If you don't have enough spectrum, how are you going to compete? You've got to force M&A ahead of that," said one telecom banker who asked not to be named due to lack of authorization to speak publicly on the topic.
For now, most of the chatter surrounds Sprint Nextel, the No. 3 U.S. mobile service, and its smaller rival, T-Mobile USA. Both are looking at ways to beef up their networks.
There is no easy answer, analysts say, with all of their possible moves full of drawbacks. What conclusions Sprint and T-Mobile eventually reach -- and what chain of events that sets off across the industry -- will be among the hot topics next week at CTIA, the annual U.S. wireless trade show, which runs March 22-24.
One thing is clear, said Mizuho analyst Michael Nelson, both Sprint and T-Mobile USA need some sort of help. "Neither company has enough spectrum on their own."
Their options include cozying up with each other or with two smaller players that have plenty of spectrum but need cash. These are LightSquared, a Harbinger-backed firm, and Clearwire Corp, which is already 54 percent owned by Sprint.
Some investors have already bet on a Sprint and T-Mobile USA merger -- and there are certainly some advantages to such a deal. Among them is the elimination of a tough competitor and the creation of a bigger No. 3 player that could put up a better fight against Verizon and AT&T.
But it's hardly a perfect coupling and underscores worries among analysts that competitive pressures could generally lead telephone operators into bad deals or troubled partnerships.
HARDLY HEAVENLY
One concern is an integration process that could last more than a year, said Recon Analytics analyst Roger Entner.
He cautions that the work of combining T-Mobile USA and Sprint could prove too distracting at a time when management should be focused on the rapidly changing wireless business.
Beyond the integration work of a typical merger, Sprint and T-Mobile USA would have the added complexity of merging wireless services that run on incompatible technologies. Sprint's 2005 Nextel purchase caused it years of trouble partly because of incompatible network technologies.
"It's not a match made in heaven," said Entner.
What is more, Sprint is only starting to recover from years of customer losses. That progress could be undermined by a deal with T-Mobile USA, which lost customers in the fourth quarter.
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