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  1. Technology
January 22, 1989


By CBR Staff Writer

Announcing the company’s largest US investment to date, British Telecommunications Plc chairman Iain Vallance said the move to acquire a 22% stake in McCaw Cellular Communications Inc – albeit at a whopping price of $1,500m (CI No 1,098) – would be seen a major step in his company’s efforts to become a truly international telecommuncations player; the investment would for instance loosen the company’s dependency on the UK economy, an increasingly important factor should there be any slowdown in home economic growth. He maintained that under the agreement key policy items at McCaw will require Telecom’s consent; the deal would give it key benefits in technology – including paging and tandem switching – and marketing, he added. McCaw Cellular’s losses – it has yet to turn a profit – were excused by reference to amortisation of licence acquisition costs and interest charges; Vallance assured observers that McCaw Cellular would begin to move into profit and that the best is yet to come for the US company. With its nine regional operating companies, McCaw Cellular is the US’s only cellular operator with anything approaching a coast-to-coast network; the company has around 200,000 US subscribers – fewer than Racal Vodafone or British Telecom’s own 60%-owned Cellnet here, but has no presence in eight of the top ten US markets. The Seattle, Washington-based company owns, or has an interest in, 130 US cellular operators, whose coverage of 50m is larger than any other cellular operator in the US. It made a loss of $120m on turnover of $150m in 1987, and in its most recent report, lost $204.8m on turnover up 62% to $219.5m in the first nine months of 1988.

The announcement was good for a $5.50 jump in the McCaw share price to $34.50 against the $41.50 a share that British Telecom is paying. As well as getting a firm 22% foothold in potentially the biggest cellular player in the US, British Telecom, with four seats on McCaw’s 19-seat board, hopes to have a substantial say in the company’s future direction and to establish a close working relationship on exchanges of technology – indeed British Telecom’s position as a potential leading player in the pan European Digital Cellular market, and also in the Telepoint cordless phone business, could well mean that technology tends to flow west rather than east. Links with Dialcom are also feasible.

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