In 1998, when a Western Wireless International subsidiary named Meteor won permission to build a mobile-phone network in Ireland, the prospects...
DUBLIN, Ireland — In 1998, when a Western Wireless International subsidiary named Meteor won permission to build a mobile-phone network in Ireland, the prospects looked good. Two other carriers already served the market, but only 15 percent of the population had cellphones, leaving plenty of potential customers.
In addition, the Irish economy was in the midst of a dramatic boom. Unemployment was reaching new lows in the traditionally poor country, and workers were earning the kind of wages that allowed them the luxury of a mobile phone.
Still, leaders of Bellevue-based Western Wireless couldn’t have anticipated that Ireland would produce some of the most valuable mobile telecom customers in all of Europe.
Today, the average revenue per user in Ireland, a common benchmark used to determine the value of customers in the wireless industry, is the second highest in Europe, at $58 (or 48 euros) per month. That compares with the $38 (31 euros) average in European Union countries and Western Wireless’ domestic average of $47.
Yet, despite Meteor’s performance and potential, Western Wireless may be about to sell the business.
“We’ve been contacted by a number of financial and strategic parties about the possible sale of our international assets,” John Stanton, chairman and chief executive of Western Wireless, said recently during the company’s first-quarter earnings report conference call.
Provides wireless service in small and rural markets in the U.S. and has built up a substantial business overseas.
Chief executive: John Stanton
2004 revenue: $1.92 billion
2004 profit: $232.9 million
U.S. subscribers: 1.5 million
International subscribers: 1.8 million
2004 international subscriber revenue: $730 million
Biggest international carrier: Tele.ring, Austria
Tele.ring subscribers: 904,300
Western is evaluating and responding to the inquiries, he said, but the company won’t comment specifically on which properties may soon be sold off. Western operates in such far-ranging locales as Austria, Slovenia, Georgia, Ghana, Cote d’Ivoire, Bolivia and Haiti.
The issue comes just as Western Wireless is about to be acquired by wireless carrier Alltel in a $6 billion deal that’s expected to close soon. The prospect of selling Western’s international assets surprises some onlookers. At the time the Alltel deal was announced in January, the two companies said no divestitures were expected.
It’s also a surprise because the international business has only recently begun to pay off and last year accounted for 45 percent of Western’s service revenues.
“If you look at Western International over the last year, they’ve gotten more subscribers internationally, they’ve almost caught up on revenue and they’ve made leaps and bounds in cash flow,” said John Byrne, a wireless analyst with Kagan Research.
The crown jewels
On closer examination, however, many agree that it makes sense for Western Wireless to offload its international business now as it’s about to merge with Little Rock, Ark.-based Alltel.
Part of the reason is Stanton, who founded what is now T-Mobile USA and who will step down when the Alltel deal is completed.
“Stanton is an entrepreneur,” noted Sharon Armbrust, senior consultant with Kagan Research. “He had the appetite and the interest in the international venture.”
By contrast, Alltel is more of a “buttoned-down” organization, she said. “It’s an excellent company but a telephone company and a U.S. company,” she said. “They don’t have a lot of entrepreneurial spirit. That’s not a negative, it’s simply its DNA.”
In addition, the timing for selling international properties may be right. Figures suggest Western’s international business has indeed done well recently. From September 2003 to September 2004, it increased revenue by 68 percent, and the number of international customers surpassed domestic subscribers last year.
Western’s Irish and Austrian properties have been the most valuable, accounting for 83 percent of consolidated service revenue for Western’s international business.
“Austria is the crown jewel, followed by Ireland,” said Jennifer Fritzsche, an analyst with Wachovia Securities, which supplies investment banking and other services to Western Wireless and maintains a market in Western Wireless common stock.
Tele.ring, Western’s Austrian operator, is debt free and generates enough cash to more than cover all of Western Wireless International’s operating requirements, Brad Horwitz, president of the business, said during the recent conference call.
But the Austrian market is competitive, has a high penetration rate and has been generating fewer customer additions for Tele.ring. “They’ve had such a good run,” Fritzsche said. “Now is a good time to sell.”
Potential bidders include European competitive services provider Tele2 and Danish telecom provider TDC, but neither has confirmed interest or actual bids.
High penetration rate
Like Austria, Ireland also now has a high penetration rate: 94 percent of the Irish population has a mobile phone. Yet onlookers think there is still opportunity in the market.
“What’s happening in Europe is that younger people, under 40, are dispensing with their fixed line,” said Padraig Coakley, managing consultant of Mason Communications, a telecom consultancy with offices in Dublin. He estimates that about 25 percent of households in Ireland don’t have a landline telephone. That means wireless carriers could see increased usage among customers who rely solely on cellphones.
A new Meteor owner would have its work cut out for it, however. Meteor is a distant third in a market that is about to gain a fourth competitor when Hutchison launches a new network in Ireland this year. Meteor has just 9 percent market share, compared with Vodafone’s 51 percent and O2’s 40 percent.
Meteor isn’t shy about discussing its strategy for winning customers. “The idea quite clearly is to steal market share,” CEO Robert Haulbrook said in February.
Still, the potential for growth is apparent enough that suitors are reportedly lining up to buy Meteor. Eircom, the incumbent fixed-line operator in Ireland, has perhaps the most to gain, but it also has the most to lose if another suitor wins the business, Coakley said.
“Because they are the fixed operator and because their focus is almost exclusively on the Irish market, I think they almost have to buy [Meteor] from their perspective,” he said.
Like most fixed-line operators, Eircom sees revenues shrinking, in part, from growing cellphone use. Becoming a wireless player is therefore critical, Coakley said.
In a statement last month, Eircom’s chief executive said the company is seeking to enter the mobile market. But the company wouldn’t comment on reports that it has officially made an offer to Meteor.
Reports suggest Meteor is hoping to be sold for $480 million to $540 million (400 million to 450 million euros). But Eircom’s debt level could make that price range difficult to reach, Coakley said.
Smart Telecom, another Irish telecom company, has also been named as a potential suitor. A spokesperson declined comment.
Other possible buyers include Irish entrepreneur Denis O’Brien, who started a mobile-phone company in Ireland that was bought by and now operates as O2. O’Brien could not be reached for comment.
Western Wireless International
Company’s international division operates units in countries across the globe.
A principal from discount airline Ryanair, as well as a number of equity firms, have also been identified as potential suitors.
Wachovia Securities’ Fritzsche said Western’s Irish and Austrian properties will probably be scooped up individually, despite Western’s hopes for a single buyer of all the international properties.
In assembling its international operations, Western targeted European markets that might be inexpensive to enter but had sufficient growth potential. It also chose countries with poor landline services, where customers might use wireless as their only phone service.
But such markets may come with a host of other issues.
Western has also had trouble in Ghana, where Westel, Western’s operator, hasn’t met build-out requirements. Westel faces a fine for its failure, but the company blames the regulator in Ghana for not providing the necessary spectrum and for not enforcing other agreements.
In Slovenia, the state-owned phone company charges customers what Western calls an “exceptionally high” fee to call customers of Vega, Western’s operator. Western thinks the practice violates anti-competitive laws in both Slovenia and the European Union and has filed complaints with Slovenian regulators.
With such varied properties, some analysts find it unlikely that any one buyer would want the lot. “I don’t see it happening,” Fritzsche said.
Nancy Gohring is a former Seattle freelance writer who contributes frequently on telecommunications and wireless subjects. She is now based in Dublin.