AT&T Wireless will take control of US mobile operator TeleCorp PCS in a $4.7 billion deal.
US mobile operator AT&T Wireless announced on Monday it would buy the 77% of smaller operator TeleCorp PCS that it did not already own for a total of $4.7 billion in shares, debts and preferred securities. AT&T Wireless, which was demerged from its parent company in July, will gain over 914,000 subscribers, mostly in the southeast and midwest of the US. The companies expect the transaction to close in H1 2002.
TeleCorp, which trades under the SunCom brand name, uses the TDMA (time division multiple access) standard – as does much of AT&T’s network at present. The two companies are already affiliated, meaning that TeleCorp subscribers can use AT&T’s network and vice versa. As a result, their geographical coverage areas complement each other. In addition, AT&T will cut the amount it pays in roaming fees, since TeleCorp is its biggest roaming partner.
The US market is probably the best opportunity anywhere in the world for mobile players at the moment. While it has historically lagged Europe in penetration rates, with just 38% penetration in 2001 compared with well over 50% in Europe, Datamonitor expects this will increase to 72% by 2006. Increasing its national coverage is a good way for AT&T to expand in the growing market, making its services more attractive and allowing national marketing campaigns.
On the negative side, acquiring TeleCorp will slightly increase AT&T’s short-term costs. The company is currently in the process of converting its TDMA network to the GSM standard that dominates outside the US, and will have to do the same to TeleCorp’s network. However, the two standards are fairly similar, reducing the cost of conversion, and heavy investment will be needed in any case to ready TeleCorp’s network for 2.5G and 3G services.
In short, the deal looks like a wise move for AT&T Wireless. Many more similar deals can be expected in the US mobile industry, as more and more national giants buy local operators to improve their coverage and build marketing synergies.
