Deutsche Telekom clinched a big win in the race toward building a powerful global mobile empire with the close of its acquisitions of VoiceStream Wireless and Powertel for a total of roughly $30 billion. The deals give the German giant its first significant telecom presence in the U.S., a crucial market for any operator hoping to create a worldwide footprint.
Deutsche Telekom has a formidable competitor on the global scene: Britains Vodafone Group, which dramatically outstrips Deutsche Telekom and all other companies in global mobile subscribers — even, ironically, in Germany. But the U.S. acquisitions arent to be taken lightly. Deutsche Telekoms ownership of VoiceStream and Powertel gives it control of the biggest U.S. operations that use the same global system for mobile communication (GSM) as all operators in Europe. Deutsche Telekom has already introduced a plan allowing some of its European customers to use their phone number and get a single rate while roaming in Europe and the U.S.
By contrast, Vodafone owns only 45 percent of Verizon Wireless, which uses a different wireless standard than the Europeans.
The U.S. is considered key because the market is expected to grow from its current 45 percent penetration to 85 percent penetration by 2009, said Ron Sommer, chairman and CEO of Deutsche Telekom.
While VoiceStream has only 4.4 million U.S. customers, compared with Verizon Wireless 28 million subscribers, it has some advantages. "They are the one carrier in the [United] States that has gobs of spectrum," Andrew Cole, global wireless practice leader at consultancy Adventis. VoiceStream has at least 20 megahertz of spectrum in all of its major markets. Thats enough to add a significant number of customers and introduce enhanced data services. Powertel, which serves the southeastern U.S., adds slightly more than 1 million subscribers to the mix.
Deutsche Telekom will be eager to put VoiceStreams spectrum to better use. Cole believes that VoiceStream will be the catalyst to introduce a new type of wireless company in the U.S.: the mobile virtual network operator. Such service providers, such as Virgin Mobile in the U.K., dont own networks, but instead buy airtime from other operators. Virgin Mobile then sells a service targeted at young people and includes features such as e-mail messages alerting them to hot concert dates.
Virgin Mobile recently opened a U.S. office in an effort to find a network operator partner, and the company would prefer to employ a GSM network. VoiceStream, therefore, is the most likely partner.
Both Deutsche Telekom and Vodafone will likely slow their aggressive acquisition strategies due to the billions of dollars of debt the operators racked up buying third-generation licenses in Europe.
That debt load is weighing down Deutsche Telekom so much that some expect the company to spin off its mobile holdings into a separate company, said Ozgur Aytar, an analyst at The Strategis Group.
In its most recent earnings announcement, Vodafone said it was halting expansion efforts and doesnt expect to enter new countries this year. But the operator will likely seek to increase its ownership in some ventures. Vodafone has been in talks with Vivendi Universal to increase its stake in SFR, a mobile operator in France. In addition, Aytar expects Vodafone to attempt to increase its share in China Mobile from 2.2 percent to closer to 25 percent when China Mobile holds an IPO later this year.