News World: VoiceStream Expands Footprint With Aerial Buy

VoiceStream Expands Footprint With Aerial Buy

By Brian Graney (TMF Panic)
September 20, 1999

Chicago-based personal communications services (PCS) company Aerial Communications (Nasdaq: AERL) was sent airborne this morning on news that it will be acquired by West Coast wireless network operator VoiceStream Wireless Corp. (Nasdaq: VSTR) in a stock swap valued at about $3 billion. The deal adds another piece to the puzzle for VoiceStream, which is building a coast-to-coast wireless footprint by rolling up operators based on the global system for mobile communication (GSM) wireless standard.

With Aerial and June merger partner Omnipoint (Nasdaq: OMPT) on board, VoiceStream's GSM network will touch roughly three quarters of the U.S. population with licenses in 22 of the 25 largest markets. Aerial's strength in large Midwestern markets fits nicely with Omnipoint's presence in the East and VoiceStream's power base in the West. The deal leaves Powertel (Nasdaq: PTEL) in the Southeast as the last remaining major regional GSM operator, although that situation may change soon given the speed with which VoiceStream is executing acquisitions. Anticipation that another VoiceStream buy is just around the corner drove Powertel's shares up 8% this morning.

VoiceStream's emergence as essentially the fourth national wireless network -- Nextel (Nasdaq: NXTL), Sprint PCS (NYSE: PCS), and AT&T (NYSE: T) are the others -- focuses attention on what technology will win the day as the standard in the U.S. wireless industry of the future. Currently, all four operators are using different technologies, with each offering certain advantages and disadvantages. In a few years' time, however, the technology debate may not matter much as third generation (3G) frameworks such as wideband CDMA seem poised to meld all of the competing platforms together. The larger question investors need to answer at this point is which operators will be leading the way once 3G arrives on the scene.

VoiceStream has several trends in its favor. First, GSM is the closest thing to a worldwide standard out there. Motorola (NYSE: MOT) estimates that half of all wireless phones sold last year were for GSM networks. Operators such as Vodaphone Airtouch (NYSE: VOD) are expanding from national footprints to global footprints, so the importance of having an international standard is only growing. Further, GSM is considered the cheapest of the wireless platforms, thanks to lower-priced phones that help keep subscriber costs of acquisition (COA) lower on average.

Meanwhile, VoiceStream has access to deep pockets around the globe for its capital needs. Hong Kong-based conglomerate Hutchison Whampoa is the firm's largest shareholder and provided a $957 million cash infusion in June. Today, Aerial's majority shareholder, Telephone and Data Systems (NYSE: TDS), said it will convert its shares into a 14% stake in VoiceStream. Finnish telecommunications firm Sonera Ltd. has also agreed to pony up $500 million for an investment in the combined company.

With its coast-to-coast network nearly completed, VoiceStream's major business emphasis will be selling the sucker to new users. With its high-profile "Get More" campaign featuring spokesperson Jamie Lee Curtis, the company has been an early industry leader in this area. McCaw Cellular veterans John Stanton and Donald Guthrie know how to build value -- now they must execute. Investors should keep their eyes on this stream, which is overflowing its banks and is fast becoming a wireless communications river.

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