DIGITAL BEAT EXTRA: OWNERSHIP 2/23/2000
Vodafone Wins Mannesmann
The term "biggest merger ever" may be losing some cache when the shelf life
for the title only lasts a few weeks. Last month we reported on the AOL-Time
Warner deal, then the biggest ever. This month we look at the new reigning
champ, Vodafone AirTouch's all-stock purchase of Mannesmann AG valued at
$183-$190 billion.
Vodafone is already the largest mobile-telephone company in the world while
Mannesmann is Germany's largest wireless phone company. The new company will
have more than 40 million customers stretching from California to Bavaria.
NTT DoCoMo of Japan will be distant second with 26.7 million subscribers.
The third largest wireless company is Telecom Italia with 17.8 million
subscribers. Vodafone/Mannesmann will control wireless networks in Europe's
four largest markets -- Britain, German, SFR in France and Italy's Omnitel
-- along with a 45% stake in the AirTouch-Bell Atlantic venture in the US
and holdings in more than 30 countries.
Mannesmann shareholders will control 49.5% of the combined company and will
get 58.96 Vodafone shares for each share of the German company they own.
Mannesmann is the most widely owned foreign stock in the US.
THE PLAYERS
Mannesmann was founded more than a century ago as a maker of seamless steel
pipe. The company has evolved into a technology-driven leader in the
telecommunications industry. The company has spent billions acquiring
wireless businesses in Italy and Britain; Mannesmann paid $33 billion in
October for Britain's Orange, the country's 3rd-largest mobile phone
network. AirTouch has been a minority partner in all of Mannesmann's
communications ventures. Another longtime ally is French media conglomerate
Vivendi.
By contrast, Vodafone is just 18 years old and was Britain's first and
2nd-largest cellular phone company. Vodaphone's sole business is wireless.
In January 1999, Vodaphone purchased AirTouch, formerly the wireless arm of
Pacific Telesis of San Francisco, in a deal that essentially made Vodaphone
and Mannesmann partners. Then Vodaphone struck a deal with Bell Atlantic to
create a wireless network that stretches across the US. But Mannesmann's
purchase of Orange made the two direct rival's and Vodaphone decided that
its only way to remain a major telecom player was to take over its
competitor.
At stake in the ensuing conflict has been control for the entire European
wireless market. Both companies recognized that the economic integration of
Europe and the adoption of a single currency in 11 countries made it crucial
to overcome boundaries. Vodafone's triumph became clear when it negotiated
an alliance on Internet services with Vivendi, with which Mannesmann was
trying to merge.
THE FALLOUT
In recent years, Sprint, one of the largest long distance carriers, US West
and TeleCommunications Inc (TCI), the cable company, agreed to be acquired
in separate transactions for a total of $176 billion. The fact that a
wireless company in Germany could be seen to be worth than all three speaks
to the explosive growth of the wireless industry. Not long ago, wireless
phone were seen as toys of the very rich. Now, about 85 million people in
the US alone are wireless subscribers. The growth -- on both sides of the
Atlantic -- has compelled companies to bet billions on the vision of a
seamless, global -- or, at least, continental -- service. Now, with the
expected further growth of wireless Internet services, more billions are
being bet. Vodaphone/Mannesmann will bring considerable strength to wireless
Internet service. Bell Atlantic runs its network using technology thought to
be the best for handling data and Vodafone's alliance with Vivendi is aimed
at creating an Internet portal for their 70 million combined customers --
did someone's eyes just perk up at AOL Time Warner?
The deal may (surprise, surprise) may trigger even greater consolidation in
the industry. "The wireless business was always about coverage and
footprint," said analyst Steven Yanis of Banc of America Securities. "That
originally meant, 'Do you have your city covered? then 'Do you have your
region covered? and then 'Do you have your nation? and now it's 'Do you have
the globe covered?'" This merger could prompt AT&T closer to its European
partner, British Telecommunications. Regional wireless powers Bell South and
SBC could also try to expand their holdings.
In parts of Europe, 70% of the population already uses wireless phones. In
the US, 30% now carry mobile phones and that number is expected to increase
to 70% by 2003, spurred, in part, by the ability to access the Internet and
to send/receive email over the phone. The share prices of wireless
technology and service companies are soaring. A large motivator in the MCI
WorldCom purchase of Sprint was the promise of Sprint PCS.
THE ROLL OF REGULATORS
The deal will have to be approved by European regulators. The European
Commission will decide on February 28 whether to approve or begin an
investigation of the deal. Roger Tuckett, principal regulatory specialist at
Ovum, said, "There are very important issues to be looked at. What will the
deal mean to the price of interconnection and call termination and for the
development of mobile Internet?"
British regulators and/or the European Commission could force the new
company to sell off Orange to win merger approval. Vodafone has agreed to
"take regulatory guidance" in divesting Orange. Analysts say the most likely
buyer is France Telecom.
A regulatory review in the US is highly unlikely and consumer groups here
are not watching the merger closely.
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