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AT&T gets its DoCoMojo workin’

A failing long-distance business got AT&T into a mess, but it could be wireless that gets the telecommunications giant out; its wireless arm won a cash infusion from deep-pocketed NTT DoCoMo.
Written by Nancy Gohring, Contributor
A failing long-distance business got AT&T into a mess, but it could be wireless that gets the telecommunications giant out.

While AT&T worried investors with a decision to split the company again and announced it has billions of dollars in debt to pay off, its wireless arm won a cash infusion from deep-pocketed NTT DoCoMo.

For $9.8 billion, Japanese wireless operator NTT DoCoMo purchased a 16 percent stake in AT&T Wireless. The business unit is scheduled to be spun off from AT&T by the middle of next year.

"They're teaming with a company that is very large and very financially stable at a time when AT&T has been coming under criticism for its debt load," said Jim Andrew, vice president at the consulting firm Adventis.

In addition to the cash, company officials said one of the most significant benefits to AT&T Wireless from the agreement is what it can learn from NTT DoCoMo's wireless Internet experience. "We'll have exclusive access to DoCoMo technology, know-how and experience," said John Zeglis, chairman and chief executive of AT&T Wireless.

The companies will create a business unit within AT&T to develop and deliver mobile Internet services, and AT&T Wireless will also license NTT DoCoMo's i-mode wireless data technology. The i-mode service has become the envy of nearly every wireless operator around the globe, boasting 15 million new users in two years and double-digit revenue per user per month.

Learning from NTT DoCoMo can help push AT&T Wireless ahead of competitors. "Their growth has been lagging a bit and this gives them a chance to leapfrog," Andrew said.

While NTT DoCoMo has openly said that its interest in entering the U.S. stems from the potential size of the market here, it has other reasons for wanting to extend its reach. "Our first objective is to disseminate the W-CDMA Wideband Code Division Multiple Access platform worldwide," said Yoshinori Uda, senior executive vice president at NTT DoCoMo.

W-CDMA is a third-generation wireless technology chosen by NTT DoCoMo and most operators around the world. By convincing more operators to choose W-CDMA, including an operator as large as AT&T Wireless, NTT DoCoMo can drive down the costs of the technology.

Previously, AT&T Wireless had planned to stop short of full-scale deployment of third-generation technology, but, with the NTT DoCoMo deal, it has committed to W-CDMA. AT&T Wireless also said it will implement the global system for mobile communication (GSM), the standard used in Europe and other regions, on top of its existing voice network. The new migration plan won't cost more than the old one, Zeglis said.

While the extra steps to GSM and W-CDMA will put AT&T Wireless on par with operators around the globe, they present some new challenges. "The introduction of additional technologies into AT&T Wireless' network creates additional headaches for the company and further complicates, not mitigates, its migration to 3G," said Chris Larsen, senior analyst at Prudential Securities, in a report. By 2003 or 2004, AT&T Wireless could be supporting seven different wireless technologies throughout its network, he notes.

NTT DoCoMo is expected to be the first operator in the world to deploy a third-generation network, and, with this agreement, AT&T Wireless hopes to be the first U.S. operator to reach 3G.

NTT DoCoMo's stake in AT&T Wireless follows a global trend of overseas operators investing in or buying U.S. wireless operators. Vodafone started the trend by merging with AirTouch, now part of Verizon Wireless. And Deutsche Telekom is in the process of purchasing VoiceStream Wireless and Powertel.

"Operators - wireless and wireline - want to have scale and scope," Andrew said. "If you have international scope, you can put more subscribers on your network and amortize costs over a larger user base." Size can also allow operators to offer unique services. "If you're a big company like AT&T or NTT, then you want to take advantage of your size to provide offers that others can't," he said.

In addition to investing in the U.S., NTT DoCoMo has been aggressively seeking to build a strong presence in Europe.

AT&T's close relationship with British Telecommunications could open doors for NTT DoCoMo, leaving some speculators envisioning a powerhouse that spans Asia, Europe and the U.S. British Telecom may not be the ideal wireless partner in Europe, however, with its weak U.K. wireless arm, Cellnet.

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