Analysts: Cellular industry contractions likely soon

The number of major U.S. cellular carriers is likely to drop in the coming year, perhaps from seven down to five, analysts said this week.

Mergers are likely to result as carriers strive to build bigger networks serving more consumers and businesses, analysts said. They also said that the mergers that take place could occur along the lines of two competing next-generation technologies that provide faster wireless data throughput.

None of the carriers would comment on the analysts' statements.

For weeks, speculation has centered on Cingular Wireless LLC in Atlanta, which could merge with AT&T Wireless Services Inc. in Redmond, Wash. Phil Redman, an analyst at Stamford, Conn.-based Gartner Inc., said recently in an interview that such a combination is possible and could be desirable for both companies.

Today, David Kerr, an analyst at Strategy Analytics in Boston, said that AT&T might merge with the old Southwestern Bell territory that became part of what is now Cingular, with both focusing on a new technology called General Packet Radio Service (GPRS), which brings data throughput over wireless up to 20K to 40K bit/sec. -- as much as four times as fast as current capabilities.

In addition, Kerr said it would make sense for the old BellSouth territory that is also now part of Cingular to merge with Sprint PCS Group in Overland Park, Kan., since both would support CDMA2000 1xrtt, a next-generation wireless data standard capable of average speeds of 50K to 70K bit/sec.

CDMA stands for Code Division Multiple Access. Both GPRS and CDMA increase speeds through packetized digital connections, moving beyond older circuit-switched technologies.

Kerr and Redman said Sprint is still a candidate for a merger with other players, including foreign carriers interested in the U.S. market.

Despite talk of mergers, the cellular industry is the healthiest part of the ailing telecommunications industry, Kerr said. Strategy Analytics released a report that said the number of U.S. cellular subscribers is growing by 13 percent throughout 2002, up to about 145 million. That means that by the end of this year, the percentage wireless subscribers will for the first time pass the 50 percent penetration mark, with the market reaching 53 percent of all potential subscribers, Kerr said.

Verizon Communications Inc. in New York, the largest carrier, has about 22 percent of all subscribers, followed by Cingular with 16 percent, AT&T with 14 percent, Sprint with 12 percent, Nextel Communications Inc. with 8 percent, VoiceStream Wireless with 6 percent, and Alltel Corp. with 5 percent.

Smaller providers make up about 17 percent of all subscribers, according to Strategy Analytics.

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