NEW YORK-Driven by telecommunications deregulation and consumer demand, the emerging industry model is the “super carrier” that delivers a broad menu of services it doesn’t necessarily originate or create, said Berge Ayvazian, executive vice president of the Yankee Group, Boston.
The newly launched MCI One package, offering customers a single bill for a personal toll-free number, cellular phone service, paging, long distance and Internet access, is a bellwether of, “the move from highly separate market segments to a market of integration,” Ayvazian said. The trend comprises both the convergence of separate industries-such as cable television and telephony and wired and wireless telecommunications-as well as partnerships between suppliers and their customers.
Ayvazian participated in a panel discussion last week titled, “Achieving Leadership Positions through Strategic Telecommunications Alliances.” The panel was part of a conference on “Innovative Strategies for the 21st Century,” sponsored by Forbes and the American Stock Exchange.
“A few years ago, the driving strategy of wireless companies was to gain a national presence. Buying spectrum was not practical; therefore creating alliances was easier, cheaper and quicker,” said Lawrence T. Babbio, vice chairman, Bell Atlantic Corp., Arlington, Va.
The PrimeCo Personal Communications limited partnership between AirTouch Communications Inc., Bell Atlantic, Nynex Corp. and U S West Inc. gained a combined cellular and PCS network covering 170 million people. Although individually its partners are quite hefty in scale, the partnership still has been able to save 10 percent to 15 percent on handsets through supplier volume discounts, he said. Joint purchasing and operations add up to savings of $20 million to $30 million each year, he added.
Babbio offered these “rules of the road” for successful alliances: “The players must be willing to compromise to achieve best practices. Hands-on management is critical, and board members’ positions are not ceremonial. Each partner must be willing to contribute funding, human resources and time. People must be able to serve multiple masters (because) what’s best for the joint venture is not necessarily best for the individual (partner) companies.”
Lucent Technologies Inc. continues to form a variety of partnerships, although “alliances are risky, and they can be messy and expensive to get out of,” said Carleton S. Fiorina, executive vice president of corporate operations.
The newly spun-off equipment vendor, headquartered in Murray Hill, N.J., has pursued traditional mergers and acquisitions to enhance its Global System for Mobile communications capabilities, she said. It has entered into joint development projects with competitors for switched digital technologies. It has, “broken the barriers of traditional customer-supplier relationships” by developing strategic alliances to combine expertise for developing smart networks. It has even begun to permit its own employees to develop entrepreneurial relationships with Lucent for development of network software and other technology advancements.
While companies involved in these joint endeavors see value imparted through enhancement of competitive advantage, investors can find it difficult to impute the value, said Dan Reingold, senior telecommunications research analyst for Merrill Lynch, New York.
“The closer you get to a full-fledged merger and the farther from a loose alliance, the greater the chance is that Wall Street will attribute value, because it looks like the companies are really involved,” he said. “It has to be big and material to the company to get Wall Street’s attention. It must startle investors in order to make it worth their while to study and evaluate. Strategically, if the alliance serves to preempt competitors in a big way, that also will get investors’ attention.”