Federal Communications Commission Chairman Kevin Martin has a love-hate relationship with wireless carriers. Sometimes he is known to help them with corporate plans and growth strategies, at other times, he gets into their cross-hair and creates what mobile carriers may consider obstacles.
Recently he spoke about regulating ETF (Early Termination Fees) fees which carriers charge when customers leave before the end of their contracts. Typically these fees range from $125-$250 per subscriber and are levied when the customer decides to disconnect her or her service before the usual 2 year contract ends. The fee is levied to recoup the discounts provided on phone sales. If a customer gets a discounted cellphone, they have to sign a contract promising to remain loyal to the carrier for a set no of years, typically 2 years. If the customer breaks the contract and leaves before the end of the contract term, they are liable to pay the ETF.
Mr Martin wants to regulate the ETF amount and tie it to the price of the device. It may be logical to suggest that a $200 device does not warrant the same ETF as a $500 device. Also Mr Martin wants to reduce the length of the contracts and let consumers jump ship sooner. It is all about consumer choice.
There have been lot of class action lawsuits recently on ETFs and per Mr Martin’s plan, states won’t be allowed to entertain class action lawsuits on these topics once FCC starts regulating the ETF and contract practices.
On this one, FCC is with the consumers..
MT
June 13, 2008
As we reported yesterday, Verizon signed a deal to acquire Alltel for $28.1 billion. Wow..are things fast. The rumor arose yesterday and the deal is done today. Possibly Verizon kept it under the wraps to thwart any competitive bidding. As we suspected, Alltel walked away with a billion dollars more than the figure mentioned yesterday. The two private equity firms behind Alltel - Goldman Sachs and Texas Pacific Group were able to recoup their $27.5 billion and some more in seven months. Nice deal for them. With credit markets in crisis, these firms probably want more cash on hand and they walked away with a nice profit (albeit not a large one) in a short time.
AT&T lost its No 1 leadership mantle. But these things hardly matter. Too much M&A to pin No 1 mantle on any one firm for too long…
MT
June 5, 2008
Wow.. just read the The Wall Street Journal (www.wsj.com) alert that Verizon may try to acquire Alltel for 27 billion dollars. This southern/midwestern carrier has 13.2 wireless customers and many million wireline customers. A combined entity of Verizon plus Alltel would boast 80 million wireless subscribers as opposed to the 71.4 million subscribers that AT&T has. It would create a wireless giant in Verizon (as if it is not already too big) and give it the bragging rights to being the largest wireless carrier in United States; a right which Verizon lost to AT&T when Cingular acquired AT&T Wireless.
We think Alltel is hot telecom property and may invite a bidding war. There are others who would want additional wireless coverage in USA like Deutsche Telekom or Sprint. Vodafone is another one which is rumored to be wanting to break from Verizon and would like to create a fully owned US subsidiary. We think Alltel may invite a higher valuation and may bargain as such with Verizon. Also it would be interesting to see how the antitrust dept reacts though we presume that Verizon has quizzed them on this topic.
Alltel is currently owned by a group of private equity firms led by Texas Pacific Group (TPG Capital) and Goldman Sachs who bought it earlier for 27.5 billion dollars.
US wireless space continues to be interesting for M&A..
MT
June 4, 2008
T-Mobile, USA announced yesterday the launch of a 3G UMTS/HSPDA based network in New York City. The plan is to rollout 3G in various metros around the country where T-Mobile offers service. This leads to intensification of competition in the 3G arena with all major US wireless carriers now providing service in 3G spectrum. T-Mobile has a niche in younger segment and has captured the hearts and minds of the college crowd with compelling products like SideKick (of course iPhone is the new fad on the campus now) and innovative rate plans like MyFaves sharing plan.
T-Mobile brings some strategic advantages in the 3G race. Though the smallest operator among the big 4 in US, they are owned by the venerable Deutsche Telekom (DT) of Germany - one of the largest carriers in Europe and a major GSM player. GSM is the dominant mobile standard in the world and T-Mobile, USA is only one of two major US carriers to support this standard (the other being AT&T). A 3G phone from T-Mobile, USA will allow seamless international 3G roaming on the parent network in Europe plus T-Mobile, USA can leverage the years of experience T-Mobile Europe has in 3G space.
T-Mobile has excelled in the younger segment in US markets - a segment which tends to use high speed data services like messaging and mobile web. So a 3G launch bodes well for this firm and one can expect high uptake in its customer base for the new service.
The chess moves in the US carrier space continue to get more interesting everyday. Yesterday, a press report suggested that DT was planning a run on Sprint, the third largest US carrier, which is facing severe operating trouble and is available for a deep discount. A combined Sprint and T-Mobile USA would face difficult integration issues but would create a dominant player in the critical US market, able to compete better with the biggies, namely AT&T and Verizon, in the US wireless space.
MT
May 6, 2008
