It's the first time U.S. carriers have agreed to share the costs of building a network, Cingular Wireless spokesman Clay Owens said. Currently, carriers work together by sharing transmission towers and base stations that make up existing phone networks. Frequently, companies sign so-called roaming agreements to provide service on another company's network.
The Cingular and VoiceStream deal for California, Nevada and New York City is similar to those commonplace in Europe, where telephone providers straining under enormous debt are inking deals to share existing networks and even build new ones.
Cingular decided to take this step because of the shortage of available radio spectrum in the United States. In addition, it aims to service the New York area by the middle of next year, the company said. Cingular was also taking into account the billions of dollars other carriers had to pay the Federal Communications Commission (FCC) for the license to use these radio frequencies.
"Quite clearly, we saw how much people bid to get into New York," Owens said. "This just makes a lot of sense for us."
The deal will have two effects for VoiceStream. First, it will let VoiceStream offer service in California and Nevada by the summer of 2002, said Chief Executive John Stanton.
It will also save VoiceStream the $1.7 billion it would cost to establish service in the California and Nevada areas, Stanton added.
"The fact that each of the new companies will not have to build out networks in the other market will represent a savings of money," he said.
The deal, however, doesn't end VoiceStream's objections to the amount of spectrum the FCC has made available for next generation wireless service. Wireless carriers have been asking the FCC to release more radio frequencies for private use. The FCC is still considering the request.
"U.S. spectrum is still scarce," Stanton said. "It does not change our view that additional spectrum needs to be allocated."
Both companies stressed that the deal is adding more wireless competition, not less, in these three states. Customers in California, Nevada and the New York City area will still get to choose between the two carriers, plus Verizon, AT&T Wireless and the other carriers that service these areas.
While both Cingular and VoiceStream might be sharing a network, they will maintain separate licenses to offer wireless service in these states, plus separate sales, marketing, billing and customer care offices.
The agreement may also be another "clue" as to what type of wireless technology--GSM or CDMA--Cingular will decide upon. The Cingular network is now comprised of both technologies, but the company has said it expects to unify its network soon.
Cingular CEO Stephen Carter said "We've said before (we've) left quite a few clues along the way, perhaps today's one more clue."
Strategis wireless analyst Naqi Jaffery was one of several analysts who said about six months ago that network sharing would ultimately come to the United States. He now expects carriers like Verizon Wireless, the largest in the United States, and others deploying networks using Qualcomm's CDMA (code division multiple access) technology to start sharing as well.
"I'd expect a similar teaming up for CDMA networks, possibly between Sprint and Verizon," he said.