AT&T Buyout of McCaw Speeds Cellular Service Race
PITTSBURGH AND SEATTLE — THE price of mobile telephone service is not going to come down dramatically. But portable phones could become easier to use in the near future.
That is the verdict of telecommunications companies and analysts as they absorb this week's announcement of the second-largest corporate buy out in United States history. AT&T, the nation's largest long-distance and telephone-equipment manufacturer, will purchase the largest cellular-phone company in the US. The planned $12.6 billion acquisition of McCaw Cellular Communications Company is shaking up the entire industry.
"It puts pressure on the industry to provide competitive pricing," says Joanne Smith, telecommunications analyst at Nomura Research Institute America. "It will be difficult for competitors to compete."
The immediate impact will be to speed up the creation of a nationwide mobile-phone network.
"What we hope to do in partnership with McCaw is to accelerate the pace of innovation in wireless communications," says Bill Weiss, communications director for AT&T personal communications services.
He sees two quick benefits: easier roaming and better telephone security. When cellular-telephone callers use their phones outside their local area, they are "roaming." Often, roaming involves punching in special access codes to make a call and not being able to receive calls.
McCaw is setting up a service that makes roaming less difficult in the areas it serves. By joining forces with AT&T, which has a cellular signaling service used by Nynex and other cellular companies, McCaw hopes to create a seamless national network.
"I can't predict where prices might go for average users," Mr. Weiss adds. But "you have to compete on service first."
PETER BERNSTEIN, an analyst with Probe Research in Cedar Knolls, N.J., expects fairly stable pricing for the near term. "There is a next tier [of potential customers] who are willing to pay at current prices," he says. Also, the AT&T deal will take at least a year to go through.
AT&T and McCaw competitors are not waiting around. In late July, the nation's No. 2 long-distance company, MCI Communications Corporation, announced it was forming a consortium with more than 150 companies to provide personal communications services or PCS.
"You don't need a cellular arm to be complete," says an MCI spokesman. But "we're very interested in wireless communications." PCS is considered by some to be the next-generation mobile service.
Another key competitor will be MobiLink, an alliance of 15 cellular carriers that began offering service nationwide July 1. "We anticipated that eventually cellular telephone service would go beyond local into really a national identity, and that's why we came together," says MobiLink president Andrew Burroughs. The partnership plans to offer "seamless roaming," so that customers can have incoming calls forwarded easily when they travel away from their home region.
The industry has grown around regulated regional markets in which there are always two providers: a wireline and non-wireline carrier. Wireline carriers are generally the same companies that provide local telephone service, known as the Baby Bells. The non-wireline companies are independents. McCaw is the largest non-wireline carrier.
There are about 10 million cellular subscribers, with much of the revenue from business customers, leaving the nation's 70 million households a largely untapped market. The Baby Bells worry that AT&T-McCaw will be able to compete unfairly for that market.