Profits U.S. carriers are beginning to receive from their international investments may position them well for the marketing battle on the homefront.
According to David Roddy, chief telecommunications economist for Deloitte & Touche Consulting Group, carriers that situate themselves as a global wireless business should make above average returns during the next decade.
“We’re going to have at every intersection four wireless carriers, and we’re going to have tremendous price wars as new entrants have markets,” said Roddy. “It will become clear that the profit margin in U.S. wireless may be pretty normal. Too much competition doesn’t build super profit margins. You really have to make money outside the United States.”
Since the government has made the decision to continue to auction spectrum, carriers will continue to enter the market easily, said Roddy. “Wireless carriers will have a hard time because they will be drowning in spectrum … It’s always going to be a challenge if you limit yourself to the U.S. domestic market.”
AirTouch Communications Inc.’s international businesses contributed $1.5 billion to its total revenues of $2.25 billion for 1996, said Sam Ginn, company chairman and chief executive officer. The company’s existing international businesses in Germany, Portugal, Belgium, Sweden and Japan recorded a proportional net income for the first time. Ginn expects all of the company’s international investments to become profitable by year-end.
“We produced way beyond what we thought we could do,” said Ginn. “Our results were driven by the international market.”
Net income for AirTouch’s existing operations totaled $69 million for the fourth quarter ended Dec. 31, 1996, a 366 percent increase compared with the previous year. Net income for 1996 was $141 million, said the company.
Losses related to start-up operations in Italy, South Korea, Spain, India and Poland were $66 million for the quarter and $157 million for the year. The company added 846,000 proportionate international cellular subscribers in 1996, and its consolidated net income was $179 million.
AirTouch’s 6.8 percent investment in Globalstar, which plans to offer worldwide voice, data and fax services via Globalstar’s low-earth-orbit satellite system, will be another significant growth area after the service is launched in 1998, said Roddy.
For AirTouch, new international opportunities are selectively few now that most countries are auctioning licenses, said spokeswoman Susan Rosenberg. “We tend to be pretty careful when it comes to bidding.” The company’s strategy for 1997 will be to increase its ownerships in its international ventures, said Rosenberg. It already increased its holdings last year in several of its businesses including Italy, Portugal and Spain.
Other companies with significant international holdings are experiencing profits as well in some existing markets. BellSouth Corp., which released selected information, said it experienced net earnings of $60 million for 1996 and $49 million for 1995 from its Latin American businesses. Bell Atlantic Corp. said its international businesses are in various stages of development, but said its New Zealand venture is profitable.
Roddy said international growth is driven by basic teledensity and the fact that most of the people in the world live outside the United States. The United States has about 60 phones per 100 people, whereas Asian countries typically have 6 phones per 100 people, he said. “We have a situation where we have the most phones in the world and the rest are catching up.”
Most of the economic growth in the world is going to happen outside the United States, continued Roddy. “There’s a 2.3 percent annual real economic growth in the U.S. China has a 10.3 percent annual [growth]. This distortion is expected to continue over the next five years … With relatively strong economic growth, [carriers] need to go where the business is going to be.”
