Finnish operator Sonera Ltd. agreed to purchase 9.1 percent of GSM operator Powertel Inc. last week, giving Powertel a financial partner to pursue strategic acquisitions.
Sonera will acquire 100,000 Powertel shares from Ericsson Inc. for $122.7 million, throwing another player into the Global System for Mobile communications carrier consolidation play. Sonera already owns 19.4 percent of Aerial Operating Co., a wholly owned subsidiary of GSM operator Aerial Communications Inc., through which Aerial conducts its personal communications services business.
Sonera’s relationship with Aerial’s parent company, Telephone and Data Systems Inc., however, soured late last year when TDS announced plans to spin off struggling Aerial. Sonera is concerned about its investment in Aerial in light of the spinoff and has threatened to sue TDS if certain terms were not renegotiated. Sonera already has declined to purchase Aerial under its right-of-first refusal clause. Aerial added just 15,000 customers during the second quarter and reduced TDS’s net income by $43.1 million.
Sonera Executive Vice President Kaj-Erik Relander said his company still is negotiating its ownership in Aerial with TDS. Analysts have indicated an outright sale of Aerial might make more sense for TDS because of the road blocks the company has hit in trying to spin off the PCS company. TDS has been looking to rid itself of troublesome Aerial for more than a year and pursued a spinoff when it was unable to come up with a tracking stock that offered reasonable valuation. Rumblings surfaced Friday indicating VoiceStream Wireless, which announced plans in June to merge with Omnipoint Communications Corp. under a $1.7 billion deal, may be interested in buying Aerial.
Sonera’s investment in Powertel, whose footprint covers much of the Southeast, gives it access to a GSM player that is in a strong position to merge. Analysts believe Powertel could become EBITDA (earnings before interest, taxes, depreciation and amortization) positive by the first quarter 2000, as the company continues to post solid subscriber growth and keep operating costs down.
The need to bring down costs, generate higher revenue, garner purchasing muscle and compete with nationwide pricing plans is driving all wireless operators to join forces, say analysts. European operators have taken notice quickly.
“Sonera’s commitment to the U.S. market is a very important part of our global strategy to continue to expand our business beyond our traditional borders,” said Relander.
Sonera and Powertel said they will explore possibilities to introduce new value-added services to Powertel’s market. Sonera already is commercially providing some of these services in Finland, a market that records the highest penetration rate (60 percent) in the world. Powertel could offer data services like enhanced short messaging services, access to news feeds and calendaring features.
“About 7 percent of our mobile revenues come from data,” said Relander. “The first stage is to introduce service we already have in our networks into other countries.”
