Posted by: Olga Kharif on August 14, 2005
I’ve been thinking about why Providence Equity Partners just recruited former Federal Communications Commission (FCC) Chairman Michael Powell. Providence, which manages $9 billion in assets, is high-profile as it is, having invested into T-Mobile USA and Nextel, now part of Sprint. It doesn’t need the extra pr.
So here’s my crazy theory: I think Providence wants Michael Powell to ensure approval of some gigantic future purchase that will need to be reviewed by the FCC. This must be something major, since Providence is an old hand in getting FCC approvals, having gotten plenty of them over the years.
So, what could this major deal be? My bet is, Providence, along with a handful of other powerful private equity firms it often collaborates with on purchases, is planning a massive buy-out of a major telecom player. One possible target? T-Mobile.
A little background: Over the past few years, private equity firms have become very keen on buying wireless assets. There have been several attempts by various firms to buy wireless towers in recent months. The reason is, wireless continues to be a high-growth business, with lots of potential. Movies for wireless phones and other cool applications should fuel this industry's growth for years to come.
Now, of all the potential wireless assets that might come up for sale in the next year, T-Mobile USA just might be the prime one.
The business is going gangbusters, but it needs more funding to grow. Its profitability is unclear. And current owner Deutsche Telekom will need to pour in some serious money to upgrade T-Mobile's network. So there have recently been rumors, which DT has denied, that the company might decide to sell T-Mobile USA by the end of this year. I personally don't think such a sale would make sense for DT, but then, who knows what that company is thinking.
And it might just be the perfect fit for Providence. T-Mobile USA is Providence's baby; Providence was one of the original investors in T-Mobile's predecessor, Western Wireless, which spun off VoiceStream in 1999 (the outfit was later purchased and named T-Mobile USA by Deutsche Telekom).
Providence might want to buy this business for the same reason it participated in the buy-outs of satellite owner PanAmSat, telecom software firm Telcordia, and storage services provider SunGard Data Systems -- namely, that T-Mobile USA can likely be acquired for a good price, likely for less than what DT originally paid for the business. And since we are all moving toward a wireless lifestyle, this business has gotten lots of potential.
Providence could, for instance, try to combine T-Mobile's cellular service with PaAmSat's satellite operations to provide a cool combination service, possibly competing with DirecTV and EchoStar. Of course, to do that, Providence will need to get FCC approval. (Oh, and the fund will likely need FCC's approval to buy T-Mobile USA in the first place.)
Or, it could take T-Mobile USA public. After all, since the Spring-Nextel and Cingular-AT&T Wireless mergers, wireless investors have fewer options. The new company's stock could be a hit.
If T-Mobile is on Providence's mind, Michael Powell would make the perfect advisor for the fund, having been not only the head of the FCC but also of the Department of Justice's anti-trust division.
Of course, this is just a theory. What do you think are some other possibilities?