[Chapter 688: They're Here]
Eric flipped through the materials Chris handed him and began to read.
In comparison to AT&T, a telecommunications giant with a market value exceeding $80 billion and profits surpassing $4 billion at the time, the other two major telecommunication companies attempting to enter the mobile communication market, Verizon and Sprint, were in a far less favorable position.
Verizon was originally formed as Bell Atlantic, carved out from the original AT&T during the 1984 telecommunications antitrust case. After ten years of development and consolidation, Verizon's current market value stood at $23 billion. However, in recent years, Verizon had struggled with a downturn and reported a loss of $754 million last year.
In comparison, Sprint, which did not have Bell ancestry, had a market value of only $10.5 billion. Nevertheless, Sprint's operational situation was much better than Verizon's. In 1994, its annual profit reached $880 million. This robust performance likely fueled Sprint's ambitious plans to establish a nationwide wireless network. During the auction process for the A and B block licenses, they made bold moves, ultimately acquiring more wireless spectrum licenses than both AT&T and Verizon combined. This ambition would lead Sprint to bear up to $1.5 billion in spectrum licensing fees, an expense that equaled nearly two years' worth of the company's net profit, assuming they maintained their current strong operational status.
Having finished reading the materials, Eric began to understand why Chris had said that bringing Verizon and Sprint into the CDMA camp might not be impossible after all.
Despite being giants in the American telecommunications industry, these two companies were nowhere near AT&T's level. Verizon, due to several mergers in recent years, had accumulated a massive debt of $8.9 billion, amounting to 38% of the company's market value. This was a major reason for Verizon's continuous losses over recent years. The latest spectrum license auction would add around $600 million to its debt burden. If Verizon wanted to build and operate a mobile communications network, in the coming years, their debt ratio could very likely surpass 50%.
Meanwhile, Sprint's situation wasn't particularly rosy either. Although it originally boasted an excellent operational status, the company had expanded too rapidly in the mobile communications sector. The $1.5 billion for spectrum licenses and the enormous funding required to establish a national mobile communications network could lead Sprint down a similar path of continuous losses as Verizon had experienced.
AT&T, with its deep pockets, made the choice to adopt GSM technology as the standard for its mobile communications network without hesitation, uninterested in the potential for GSM to be overtaken by more advanced third-generation communication technology in the future. However, financially strapped Verizon and Sprint had to carefully consider the cost implications of their technology choices in building their networks. Although CDMA technology had not yet achieved commercial viability, there was significant experimental evidence to demonstrate its advantages in spectrum capacity and construction costs compared to GSM and other second-generation digital communication technologies.
Chris patiently waited for Eric to finish reading the materials before saying, "Aside from the factors surrounding CDMA itself, if Firefly expressed interest in the telecommunications industry and openly funded Qualcomm, then Verizon and Sprint would be highly inclined to lean towards CDMA. As the debt burdens for both companies increased, it would become significantly harder for them to secure financing through either debt or equity in the future. Firefly has the substantial capital they desperately need. Even if we don't directly support these two companies financially, they would incline towards technological collaboration with Qualcomm, which has the backing of such a powerful entity as Firefly."
Eric nodded, leaning back on the sofa while lightly tracing the materials in hand with his fingers, yet his mind wandered elsewhere.
...
In any country, the telecommunications industry was monopolized by certain giants. Had it not been for the famous telecommunications antitrust case in 1984, AT&T would undoubtedly be the company with the highest market value in the U.S. today. Even after splitting off seven subsidiaries, AT&T, with its current market value over $80 billion, remained one of the five largest corporate giants in America, while General Electric, ranked first, was valued at just over $90 billion.
Although AT&T's monopoly in the U.S. wasn't backed by administrative support, and AT&T faced restrictions from federal antitrust authorities to expand further, even after a major breakup, AT&T's current monopolistic status was still hard to challenge. Over a hundred years of development had provided AT&T with a comprehensive nationwide landline communication network, which not only required massive investment but also wasn't something that could be easily built in just a few years. Most emerging companies wishing to start their own telecom businesses often had to rent communication lines from AT&T. In such conditions, it was nearly impossible for newcomers to catch up or surpass AT&T.
However, things that had once seemed hopeless over the decades were now presented with significant opportunities due to the advent of new technological waves: the rise of the mobile communications and broadband internet industries. At this point, both industries were just beginning to take shape. Aside from Eric, no one could foresee how developed these sectors might become, but Eric was well aware that in twenty years, either the mobile communications or the broadband industry would surpass AT&T's then-dominant landline business. By the early 2010s, many households had moved away from landlines, while mobile phones and broadband had become essential to daily life.
Though the recent auction for C block licenses faced delays because of a somewhat absurd lawsuit -- indicating that newcomers wanting to enter the telecommunications industry still faced numerous overt and covert barriers -- these barriers didn't mean much to Eric, who already held vast capital in hand. To put it in modern gaming terms, he didn't need to start from scratch like those noob players. He could simply invest to unlock a high-level account and enjoy the game directly. At that moment, he had two excellent "game accounts" at his disposal.
Eric knew a bit about the future prospects of the two companies. Verizon and Sprint, alongside AT&T, would emerge as the three giants of the American telecommunications industry. He speculated that this upcoming situation was primarily due to the relentless efforts Verizon and Sprint were currently making in mobile communications. In contrast, other U.S. telecom businesses of comparable strength to Verizon and Sprint, such as Southern Bell and Northern Telecom, had likely missed out on this crucial industrial transformation and would gradually be eliminated from the market or swallowed by other companies.
Moreover, due to the enormous capital required for spectrum licensing fees and constructing a nationwide mobile network, this was the best timing to invest in both companies. Eric understood that this may be the last opportunity; missing it could mean significant ramifications. As the wave of new technology surged forward, when the Nasdaq began to soar in the following years, both Verizon and Sprint could simply issue a small amount of stock in the public market to raise sufficient capital for growth. They would be unlikely to bring in a major shareholder like Firefly, which could alter their equity structure. Even if they wanted to, the skyrocketing market valuations would prevent Firefly from raising enough funds.
...
Seeing Eric deep in thought, Chris patiently waited a moment before asking, "Eric, what are you thinking?"
Snapping back to reality, Eric raised the materials in his hand and asked straightforwardly, "Chris, which company do you think would be more receptive to our investment, Verizon or Sprint?"
Chris raised an eyebrow, preparing to respond, when the intercom nearby beeped a few times. Eric stood up and pressed the intercom button, hearing the manor's doorman's voice come through: "Mr. Williams, Messrs. Jacob and Viterbi have arrived."
*****
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