DoCoMo Moving Toward AT&T Wireless Stake as Buildout Costs Rise
AT&T Wireless
(AWE)
could get its hands on a huge pile of money as early as next week, bolstering its cash position, as the nation's third-largest mobile phone operator prepares to bid for spectrum at an upcoming auction.
Tokyo-based
NTT DoCoMo
is ready to invest as much as $9 billion for a 15% to 20% stake in AT&T Wireless, according to a report in the
Financial Times
. The money from the partnership would help defray AT&T's cost of building out a network or bidding for spectrum. There had been speculation that DoCoMo would take a stake in either AT&T Wireless or
Cingular Wireless
, a joint venture of
BellSouth
(BLS)
and
SBC Communications
(SBC)
, in an effort to break into the U.S. market. AT&T Wireless had no comment, while a DoCoMo representative could not be reached.
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A DoCoMo investment in AT&T wireless also suggests that the third-generation wireless standard known as W-CDMA has a better chance of taking hold in the U.S. Most European and Asian operators are already moving in that direction, but some major U.S. players are heading toward an incompatible third-generation standard known as CDMA 2000.
Cash on the Barrel
A trans-Pacific deal, which could come as early as next week, would be a tremendous boon to AT&T Wireless. The Redmond, Wash.-based wireless service provider is part of
AT&T
, which plans to spin off AT&T Wireless as an independent publicly held company. With earnings before interest, taxes, depreciation and amortization of $472 million in the most recent
third quarter, AT&T Wireless could use the $9 billion to bid on spectrum and build out its network.
"These companies don't have the balance sheet strength, the financial horsepower to pay for the huge costs of building networks and acquiring spectrum licenses," says Todd Bernier, a stock analyst at
Morningstar.com
. "How do you do it? Partner with people." Morningstar doesn't rate stocks or underwrite.
"
VoiceStream
(VSTR)
realized it can't go it alone, so it teamed up with
Deutsche Telekom
(DT) - Get Dynatrace Inc. Report
," he continues, referring to the German phone company's pending
purchase of VoiceStream. "Now, AT&T Wireless is giving up a small stake as a way of sharing expenses. When it's spun off as a pure-play wireless operator, it can more easily tap the capital markets."
The company, and its U.S. rivals, will incur significant expenses at the
Federal Communications Commission's
spectrum auction, slated for Dec. 12 unless
NextWave Telecom
can somehow block it. (The FCC plans to auction licenses forfeited by NextWave when it filed for bankruptcy in 1998. NextWave is arguing that it still owns the licenses.) Spectrum is the range of electromagnetic radio frequencies used in the transmission of voice, data and video. Only a fixed amount is available, which makes spectrum a coveted commodity.
Merrill Lynch
estimates that as much as $18.5 billion could be spent on this auction. AT&T Wireless, with licenses in the top 50 population markets, is the most spectrum-rich of its competitors. Even so, the more spectrum the better, especially as data traffic increases with the development of third-generation networks.
Standard-Bearer
The debate over which third-generation standard -- W-CDMA or CDMA 2000 -- will win out continues. DoCoMo, like operators in much of Europe and Asia, plans to adopt W-CDMA as a third-generation standard in May 2001. AT&T Wireless currently uses a second-generation time division multiple access, or TDMA, standard, which could eventually migrate to W-CDMA, though DoCoMo's investment could hasten that migration. Meanwhile,
Verizon Wireless
and
Sprint PCS
(PCS)
employ a second-generation standard that will naturally migrate to CDMA 2000.
DoCoMo, which has met with tremendous success in the popularity of its I-Mode mobile Internet service, has already taken minority stakes in
Hutchison Telecom
of the U.K. and
KPN Mobile
(KPN)
of the Netherlands.
Shares of AT&T Wireless fell 75 cents, or 4%, to $19.13 in Wednesday midday trading.
