While one arm of U S West Inc. prepares to roll out pocket phone service later this year, another arm, U S West Media Group’s cellular division, is slated to disappear.
The paradox highlights U S West’s jagged wireless communications strategy. In its short wireless communications history, the Bell company has simultaneously trailblazed and stalled regarding its wireless properties.
U S West Communications Group, the 14-state telecommunications company, recently bid $57 million for D-and E-block personal communications services licenses in 53 markets-the same markets where it provides local wireline service. The company said it expects to have some systems up before the end of the year.
U S West Communications’ main strategy is simple. It will offer packaged goods and services that include wireless offerings. The company said it realized about a year ago it needed a wireless element to compete in the wireline business.
“It became apparent that our competitors were going to offer packaged bundles of goods and services to a customer base that would include wireless services,” Corey Ford, vice president of development and external affairs for U S West Wireless Group, had stated.
The company also realized it needed paging to compete. So last year it began reselling service from Westlink Paging Inc., owned by Arch Communications Group Inc. U S West was familiar with Westlink-the Bell company sold its paging business to Westlink in 1994.
U S West Communications also could have bundled its services using cellular service from its cellular unit, U S West NewVector Group Inc., but the Media Group entered into an agreement with AirTouch in 1994 to combine all domestic cellular properties. When all is said and done, the Media Group will own roughly 30 percent of the venture. U S West Cellular’s name has already been changed to AirTouch Cellular in all markets. The merger is expected to be complete this year.
The purpose of the merger, said the Media Group, is to expand its wireless footprint and strengthen its competitive position. But these objectives could have been accomplished years ago, according to some.
“They’re sort of correcting mistakes they made in the past by linking up with AirTouch,” said Clifford Bean, an independent wireless analyst in Concord, Mass. “They didn’t seize the opportunities. One must believe they wanted to focus on the core business rather than wireless.”
“We could have done it. We had the opportunities shown to us as early as 1985,” said John DeFeo, former president and chief executive officer of NewVector who served from 1985 to 1994. DeFeo was recently named CEO, president, chief operating officer and vice chairman of the board of directors for Renton, Wash.-based Multiple Zones International, a global marketer of microcomputer products.
U S West was actually the pioneer of acquisitions outside a regional Bell operating company’s wireline area, said DeFeo. It began by purchasing the cellular franchise in San Diego in late 1985. “We really started the idea of B-side carriers acquiring additional properties. We pioneered the regulation with the government. We were very early in that journey.”
But the aggressiveness stopped when prices began to escalate and U S West became fearful of the impact acquisitions would have on its earning statements, said Dennis Leibowitz, a securities analyst with Donaldson, Lufkin & Jenrette Securities Corp. in New York.
NewVector “considered every major cellular property that went by and examined it and did an analysis,” said DeFeo. “I think its fair to say that U S West Inc. wasn’t as convinced of the opportunity for value.”
Lin Broadcasting Corp., Metromedia and MCI Communications Corp. properties were just a few of the opportunities U S West passed by, said DeFeo. “There was quite a list that we looked at,” he said.
Lin held cellular interests in cities with mass market potential-New York, Philadelphia, Dallas, Houston, Texas, and Los Angeles. Eventually, Lin was purchased by McCaw Cellular Communications Inc., which in turn was bought by AT&T Corp.
Metromedia sold of most its paging and cellular interests, which included key markets like Boston, Chicago and Baltimore/Washington, D.C., to SBC Communications Inc. in late 1986 for $1.2 billion.
MCI is the nation’s largest cellular reseller.
The late 1980s and early 1990s were crucial times for the companies that wanted to become large wireless contenders, said Leibowitz. They needed to acquire properties in order to expand their wireless opportunities. By the end of this merger-and-acquisition period, most of the independent cellular companies were gone, Leibowitz added.
Companies like McCaw, SBC and BellSouth aggressively bought up properties and companies. Today, they are the largest cellular carriers in the nation.
Business was not a bust for NewVector during the late 1980s. In fact, the company was experiencing significant subscriber and financial growth, said DeFeo. “In ’88 and ’89, NewVector was doing everything just right. We were at the top of the heap, ranked in the top three of the best operating carriers in terms of subscriber growth and cost. In the late 80s, we needed to decide to make a bold move.”
But U S West was more interested in making investments in broadband technology, and that led to the merger of NewVector, said DeFeo. “It was more comfortable with tangible assets … investments in broadband were more understood,” he said.
“U S West has by far been the most aggressive in cable, and they are now, with the acquisition of Continental [Cablevision], the second largest cable company,” said Leibowitz. “No one else (out of the local telephone carriers) has a cable strategy.”
Besides Boston-based Continental, the Media Group holds interests in Time Warner Cable (25 percent), Atlanta-based MediaOne (100 percent), Telewest Communications in London (26.8 percent) and Warner Brothers Studio/HBO (25 percent). Sixty-five percent of its revenues come from the cable business. The rest comes from the Media Group’s directory publishing business, wireless and international investments, said Steve Lang, spokesman for the Media Group.
DLJ’s Leibowitz said the Media Group can now afford to expand its wireless investments because its earnings no longer directly affect U S West Inc.. In 1995, U S West Inc. created two classes of common stock-a yield stock to track its telecommunications business and a growth stock to track the Media Group.
The Media Group owns 24 percent of PrimeCo Personal Communications L.P., which recently launched PCS in 11 markets. AirTouch and Bell Atlantic Nynex Mobile are the other owners.
“With PrimeCo we saw great advantages in scale and scope by working together with these three other companies to purchase licenses for a very significant national footprint. It was a real win. It complements each company’s individual footprints,” said Cathy Fowler, spokeswoman for the Media Group. “We’re a force to be reckoned with when you put the experience together of four companies.”
Internationally, the Media Group owns wireless interests in the United Kingdom, Hungary, The Czech Republic, Slovakia, Poland, Malaysia, India and Russia. The Associated Press reported the company was putting off plans to expand its business in India because it wanted to cut back on its international telephone operations in order to focus on cable. The Media Group has called the story bogus and said it is pushing forward with its plans in India and will pursue more international opportunities.
