Domestic Wireless Carriers In Quest To Purchase Spectrum; How Will Increased Data Transfer Speeds Affect Online Media Businesses?
January 25, 2012 - The Wall Street Transcript has just published Wireless Communications And Telecom Report offering a timely review of the Telecommunications sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Jonathan Chaplin joined Credit Suisse in June 2009 as Senior Analyst covering the telecommunications services sector. Mr. Chaplin has been recognized as Best on The Street among telecom Analysts by The Wall Street Journal, second for stockpicking among telecom Analysts by Forbes magazine and as a leading stockpicker among Analysts covering all industries by Institutional Investor magazine. In addition, he was named as a runnerup in the Institutional Investor All-America Research team rankings. Before joining Credit Suisse, Mr. Chaplin was a Director and Senior Analyst covering the telecommunications, cable and DBS sectors at JPMorgan. Before joining equity research, Mr. Chaplin was an Investment Banker in the telecom media and technology group and the mergers and acquisitions group at JPMorgan. In addition to investment banking and equity research experience, he has direct industry experience consulting to telecommunications companies. Mr. Chaplin also started and ran several entrepreneurial ventures, including a magazine and two restaurants. Mr. Chaplin holds a B.A. and an LLB, J.D. equivalent, from the University of Cape Town.
TWST: What types of investors should be looking at this space right now?
Mr. Chaplin: Value investors and yield investors for the most part. Verizon will appeal to a broader range of investors. It's got a much more sort of growth, GARP, momentum following than any of the other names in the group.
TWST: Are any of these players looking at expanding outside of the U.S. into international markets?
Mr. Chaplin: AT&T (T) and Verizon (VZ) constantly look at assets internationally, but they haven't done any significant acquisitions for a while. They're always looking at acquisitions that could potentially increase the reach of their enterprise business or the depth of their enterprise business in a market that they're already in.
AT&T has looked at wireless opportunities internationally. They've got a tremendous position in the U.S. If they can export that scale advantage they have, they would. But neither of them have found anything particularly compelling in the last several years.
TWST: The AT&T/T-Mobile deal was a large potential merger that didn't go through. Are we going to see mergers in the space in the near term?
Mr. Chaplin: I think this is a consolidating space. It's a space that urgently needs consolidation. So I think we're far from done. I think in 2012 we're going to see mergers and consolidation, and we are going to continue to see a significant number of transactions over the course of the next couple of years.
TWST: Is the consolidation going to be among the carriers or will it include nontraditional wireless companies, such as the cable companies?
Mr. Chaplin: There are two consolidation themes. One of them is improving the market structure in wireless. The AT&T/T-Mobile deal didn't happen, but maybe a Sprint/T-Mobile deal could. That probably has to wait a year or two before it could happen because Sprint has got an awful lot on their plate at the moment. But at some point, that's a deal that makes a tremendous amount of sense.
In the meantime, you could see those companies start to consolidate networks and capture some of the benefits of consolidation without an actual merger. I think you'll see a lot of partnering and potentially a consolidation transaction around Clearwire.
I think there is a decent prospect that DISH will be acquired. So those are all transactions in and around the wireless space, either acquisitions to get access to more spectrum or mergers or acquisitions or partnerships that improve the industry structure.
The one remaining theme within wireless is a cleanup of the smaller second- and third-tier carriers. For example, Leap (LEAP) and MetroPCS (PCS) should have been put together years ago. That's a transaction that could happen. Both of them could be acquired by one of the smaller carriers like T-Mobile or Sprint. U.S. Cellular (USM) is another carrier that should have been consolidated away years and years ago and never has. Cincinnati Bell (CBB) has a wireless business that should have been consolidated away. There are still tremendous opportunities for consolidation in the wireless space.
The other area of consolidation is in wireline. You've got too many big national networks out there that don't have enough scale that need to be put together. Sprint has got one. Level 3 (LVLT), Global Crossing have two. They're in the process of being consolidated. Qwest (CTQ), CenturyTel (CTL) have one. Verizon has one. AT&T has one. Then there are a bunch of smaller carriers like Time Warner Telecom (TWTC) and a few others that all have more or less nationwide networks.
Then the carriers with big nationwide networks need a deeper footprint within metro markets. So there are opportunities for consolidation between those types of companies as well.
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