Sprint Nextel Bets on WiMax

Today, Sprint Nextel Corp. announced a move that would change the business model of its wireless operations. On top of selling traditional wireless service to subscribers, the wireless carrier is seeking to give access to the network to other type of products, such as digital cameras and billboards. The early WiMax revenue generated by Sprint will probably come from the subscription model. Longer term, though, the company hopes to make money from advertising. For example, it has a deal with Google Inc. in which more than half of the mobile-advertising revenue from the WiMax network goes to Sprint. It expects to post revenue of $2 billion to $2.5 billion from the network in 2010.

WiMax is a wider-ranging form of Internet access similar to Wi-Fi, but it uses licensed spectrum and is considered more dependable. The company has teamed with Intel Corp., Motorola Inc., Samsung Electronics Co. and Nokia Corp. to release 50 million WiMax products over the next three years, which would boost demand for WiMax services. For instance, Sprint could sell service, either as a one-time fee or regular subscription, that would allow consumers to send photos to their home computer from the camera through the WiMax connection. Nevertheless, the 50 million devices expected over the next three years still are light in comparison to Wi-Fi-enabled devices. Roughly 200 million consumer-electronic devices are expected to carry Wi-Fi chips by 2010, according to ABI Research.

Sprint’s bet will be expensive, about $5 billion through 2010. Its WiMax network, which it calls 4G technology, would pay off by winning new customers. The network won't just benefit Sprint. Fred Wright, who heads up cellular-network products and WiMax for Motorola, said he sees revenue opportunity in providing consumer devices, modems and networking equipment to support WiMax. In the 2010 to 2012 time frame, the market will be worth "billions of billions of dollars," he said.

There is no question that Sprint Nextel needs the help. The wireless carrier has been steadily losing customers over the past several quarters, and only in the recent quarter did it turn itself around. They hope the new brand for the business, Xohm, be powerful enough to put them back on track to compete with AT&T and Verizon Wireless.

Dobson’a acquisition was easy to spot

Last week on this same blog, I wrote about Dobson Communications Corp. exploring strategic options, including the sale of the company (see related story). It turned out that all comments on my review on Dobson were right on target. It was pretty obvious it was a happy story for everybody. We foresaw Dobson should sale the company for a considerable profit (especially in these market conditions), whereas any big wireless carrier that would buy them would gain additional cellular coverage without making huge capital investments.

Last Friday, AT&T Inc. agreed to purchase wireless carrier Dobson for approximately $2.8 billion in cash. The price represents a nearly 17% premium over Dobson's share price as of last Thursday. Including net debt as of the first quarter of 2007, the total transaction value is approximately $5.1 billion. Some Dobson investors were hoping for a strategic buyer such as AT&T to emerge, betting that such a company could manage a larger premium over Dobson's share price than a potential private-equity buyer.

AT&T seemed to be at the right place at the right time. Dobson offers access to markets where cellular penetration is not as high as in major metropolitan markets, thus leaving more room for future growth. And even though roaming partnerships with larger wireless carriers will be difficult to maintain, AT&T expects to save about $2.5 billion through overhead cuts and reduced "roaming" expenses.

In the past years, AT&T made several large deals that expanded its wireless and landline reach, such as the acquisitions of AT&T Wireless and BellSouth Corp. However, consolidation in the telecom industry has left AT&T and other large operators with fewer options for big acquisitions. But there are many small wireless and wireline carriers for them to chase. Some observer's on Wall Street have said a broader "roll-up" of such rural carriers could be in store.

And the Telecom consolidation continues: This time is Dobson

Rural wireless provider Dobson Communications Corp. is considering strategic options, including a sale of the company as deal activity among the telecom industry's smaller players continues to accelerate. The move comes as private-equity firms are increasingly looking for high-profile telecom deals, leading to higher share prices for some smaller telecom companies in recent weeks. In fact, two private-equity firms agreed last month to acquire Alltel, the nation's fifth-largest cellphone company by subscribers, in a deal valued at $26.3 billion.

Dobson, based in Oklahoma City, markets wireless services in rural and suburban areas under the Cellular One brand, serving about 1.7 million customers. Last year, Dobson got 22% of its overall revenue through roaming partnerships with major U.S. wireless operators such as AT&T Inc. T-Mobile USA Inc. However, it is becoming more difficult to sustain those partnerships as competition intensifies in rural markets and large carriers build out networks to previously underserved areas. The company focuses in several Midwestern states, parts of the Southwest, Alaska and upstate New York. Lately, it has expanded its reach by acquiring smaller operators. Dobson's competitors include such carriers as Alltel Corp., Rural Cellular Corp. and US Cellular.

So, why anybody would be interested in Dobson? For potential buyers, Dobson offers access to markets where cellular penetration is not as high as in major metropolitan markets, thus leaving more room for future growth. However, roaming partnerships with larger wireless carriers will be difficult to maintain. Further, Dobson receives funding from the federal government's "universal service" fund to finance its network build-out in high-cost areas and the FCC is considering a cap on how much carriers like Dobson could receive. That would seriously limit its expansion. In my opinion, this is a happy story for everybody. Dobson should sale the company for a considerable profit (especially in these market conditions), whereas any big wireless carrier that buy them would gain additional cellular coverage without making huge capital investments. More to come for sure.