[Chapter 718: Speculative Mindset]
Throughout May, Eric and Chris were busy working on Firefly Investment Company's acquisition of a stake in the telecommunications operator, Sprint.
Both parties had reached a rough agreement on the transaction in early May, with Sprint planning to issue 400 million shares of stock to Firefly Investment for a capital injection of $1.32 billion. After the deal was complete, Sprint would increase its total share capital to 4 billion shares, with Firefly Investment owning 10% and securing two seats on Sprint's board of directors. If this deal succeeded, Sprint would likely adopt Qualcomm's CDMA technology, thanks to the push from Firefly Investment.
However, the process was far from over once they drafted the deal. Though the barriers to entry in the communications industry were gradually loosening, getting a foothold in such a tightly regulated sector required navigating through layers of approval.
Firefly and Sprint first needed to submit their plan to the Federal Trade Commission (FTC) for antitrust review. Along with owning Qualcomm, which was involved in the research and development of mobile communication technology, Firefly Investment also held controlling shares in Nokia, a manufacturer of mobile communication base stations and terminal equipment. If they successfully acquired a stake in Sprint, they would essentially have a grip on the entire mobile communication industry chain, drawing strong suspicions of monopolistic intentions.
If this had been ten years prior, the FTC would have immediately rejected this transaction. However, in recent years, the federal government continued to ease legal restrictions on the telecommunications sector, giving this transaction a possibility of approval.
After Eric and Chris attended several FTC hearings regarding the deal and engaged in behind-the-scenes lobbying, by the end of May, the FTC finally approved the transaction.
While dealing with the FTC, Firefly Investment and Sprint also submitted relevant applications to the Securities and Exchange Commission (SEC) and the Federal Communications Commission (FCC). With the FTC's unpredictable approval obtained, the remaining two agencies were much simpler to navigate. Within a week of the FTC's approval, both the SEC and FCC also granted their approval for the deal.
...
On May 26, the signing ceremony for Firefly Investment and Sprint took place at the Sprint Group headquarters in Manhattan.
At the press conference following the signing, senior executives from both Firefly Investment and Sprint publicly announced that Sprint would collaborate deeply with Qualcomm to build a nationwide mobile communication network utilizing CDMA technology.
Just a month earlier, Verizon had joined the CDMA camp after securing $300 million in targeted bond financing from Firefly Investment. Now, with Sprint -- holding nearly half of the A and B class mobile communication licenses -- announcing its entry into the CDMA arena, it marked the resolution of disputes over mobile communication technology standards in the United States. CDMA technology not only escaped being entirely sidelined but also captured more than half of the U.S. mobile communication market.
As soon as the conference ended, Qualcomm's stock price began to surge, skyrocketing by 8% during trading hours to close at $31.5 per share, comfortably above the $30 mark. Compared to approximately $17 per share at the end of the previous year, Qualcomm's market cap had increased by 85% in just six months, making it only a matter of time before it doubled.
...
"I remember the last time I was in San Diego, Qualcomm's communications equipment manufacturing plant was just starting to select a location. They wouldn't be able to scale production until at least the end of the year," Eric mused. "Although Sprint committed to using CDMA technology, they can't wait six months, so they've decided to temporarily implement a GSM network in the Washington area. Additionally, Qualcomm initially planned to partner with Sony to build the factory, but I vetoed that plan. If we're going to collaborate, it should definitely be with Nokia. This is a prime opportunity for Nokia to enter the U.S. market. Before we took control of Nokia in 1991, Qualcomm had already granted Nokia a complete set of CDMA technology licenses. While Nokia focused on GSM development, they do have some foundation in that area and can provide a number of management personnel for Qualcomm's manufacturing facility."
The next day was Saturday. After a busy Friday, many tasks had finally concluded, and Chris brought Emily to East Hampton.
However, the two quickly retreated to Eric's study to discuss business. Naturally, the conversation started with Qualcomm. Chris understood very well that Eric's recent strategic moves were largely aimed at benefiting Qualcomm.
Leaning back in his chair, Eric listened to Chris and replied, "When it comes to GSM and CDMA, I'd think that for the time being neither side could effectively push the other out of the market. Therefore, the best route is actually the integration of both technologies. It's similar to this DVD format dispute; the two major DVD technology standard camps were very smart about not wasting another decade fighting over R+ and R-, choosing instead to support each other."
It had been a few years since the DVD standard was established, and Hollywood had been doing everything to delay the launch of DVDs due to concerns over the cheaper cost of DVD piracy.
However, it was no longer possible to delay further. Following the experience with the Sony Betamax lawsuit, Hollywood could not rely on litigation to block the emergence of DVDs. It was expected that major DVD manufacturers would release DVD players after the summer blockbuster season.
Chris, also informed on this topic, chimed in, "The standards held by the two DVD technology camps still belong to the same generation of technology, so supporting each other wouldn't be difficult. But GSM and CDMA are two completely different generations of technology standards. The integration will mostly be impossible."
Eric clarified, "I'm not talking about integration at the operator level but rather at the terminal level. Nokia has GSM technology, Qualcomm has CDMA technology, and both have significantly deep technical accumulations in these standards. Therefore, launching phones that support both GSM and CDMA networks shouldn't be hard at all."
Dual-mode and full-network phones supporting multiple network standards were very common in later years. In 1995, however, the new generation of digital communication technology was just beginning to become widespread. The major tech camps were fully focused on squeezing one another out of the market and had never considered coexistence or integration. Therefore, a multi-network compatible phone was a brand-new concept.
Chris's eyes lit up. "Eric, that's a brilliant idea! How about we hold a conference call tomorrow with Jorma Ollila and Irwin Jacobs to discuss this? A phone that can support both GSM and CDMA networks might not have a huge market in Europe, but in North America, where GSM and CDMA coexist, there's definitely potential!"
"Go ahead and arrange it. Jurassic Park 2 is releasing on June 2, and I might be able to stay in New York for another week," Eric replied. He was also planning to have an in-depth discussion with Nokia's CEO, Jorma Ollila, soon.
Nokia was one of the first manufacturers to bet on GSM technology, which was key to its rapid rise in recent years. While it didn't monopolize CDMA patents like Qualcomm, Nokia had the most GSM-related patents among major telecommunications equipment manufacturers.
Months ago, when news surfaced that Firefly Investment was acquiring shares in Qualcomm, Jorma Ollila expressed confusion over Eric's strategies in emails. He believed that blocking Qualcomm's CDMA technology would better serve Nokia's interests. Now, Eric not only supported CDMA technology but also captured half of the mobile communication market in the U.S., which surely stirred some tension, even if Jorma's public reaction remained calm.
Although Eric had explained the intentions behind his actions over the phone and via email, more communication would surely be beneficial.
Only through maintaining open dialogue and understanding each other's intentions could Eric comfortably delegate the management of his enterprises. This would free him up for other pursuits.
Chris habitually pulled out a small notebook from his shirt pocket to jot down this matter seriously before turning back to Eric. "Once we settle this, I think we should discuss Yahoo."
"I've been in contact with Ian and the others, and I have a good grasp of their general thoughts," Eric nodded.
The employee stock option plan was set to expire this year, and Firefly Investment's team began evaluating the performance of Yahoo's senior management to determine their stock rewards.
Originally, Eric planned to initiate Yahoo's IPO after this stock incentive program ended. However, recently, the top executives unanimously expressed the desire for Eric to delay Yahoo's IPO. Their reasoning was quite sound. The capital market was overly profit-driven, and once Yahoo went public, it would face performance pressures, undermining its current strategy of cautious, steady growth.
After repeated persuading from Yahoo's management, Eric began to reconsider this matter.
A few years back, Eric had originally intended to take Yahoo public in 1995, aiming to cash in on the rapidly inflating Internet bubble. Once his Yahoo stocks moved past the lockup period, he hoped to net a substantial sum as Yahoo's stock price soared.
In hindsight, Eric's plan had a very obvious speculative mindset, subconsciously focusing on cashing out rather than nurturing Yahoo's growth.
Through these years of reflection, Eric recognized that if he maintained such a mindset, his career would inevitably reach a bottleneck at some point in the future.
Seeing Eric lost in thought, Chris asked, "So, Eric, what are you thinking now?"
"I suppose you agree with their idea, right?" Eric smiled, countering his question.
Chris nodded candidly. "The capital markets are currently very favorable toward Internet investments. So, I believe if we delay going public for a few years until Yahoo has a clearer profitability outlook, we can certainly reap greater rewards."
Eric recalled the timeline from his previous reality, where the Nasdaq index began to soar in 1998, skyrocketing from just over 1,000 points to over 5,000 within two years.
If Yahoo went public after 1998, the funds gathered in the initial public offering would have unquestionably been several times those available now. However, under a stringent financial regulatory system, that money would predominantly be allocated to Yahoo's own development rather than completely belonging to Eric. While there were ways to transfer some of those funds, doing so carried legal risks. It certainly paled against the safety of simply offloading personal shares.
Cash out, cash out, cash out...
Eric repeated the word in his mind, suddenly realizing that he wasn't lacking in money anymore -- no matter how much he cashed out, it would still go towards investment.
This sudden clarity brought Eric a sense of enlightenment. He turned to Chris and said, "Let's do it this way; we'll delay the IPO plan, but in any case, we'll aim to complete the IPO before our contract with Microsoft goes into effect."
"Of course," Chris chuckled, relieved, that if Eric had insisted otherwise, he wouldn't have known how to persuade him. "Speaking of which, Microsoft's Windows 95 is set to launch in August. I assume you've already started using this system, right? Microsoft's stock has been on the rise lately; the market seems very optimistic about this new operating system."
While Microsoft confirmed that Windows 95 would launch in late August, several testing versions had already been released, and piracy of copies had spread widely outside the U.S.
Eric most certainly used this now-familiar operating system, stating, "I feel this system could allow Microsoft to monopolize the operating system market, which likely means we're going to be butting heads with them in the coming years. Microsoft has firmly established its dominance in the operating system market. They will undoubtedly look to penetrate the Internet market now. I can't even confirm whether Bill Gates might forcibly tear up our agreement; after all, Microsoft may not want to wait until 1999."
"I feel Microsoft has already begun to show signs of restlessness," Chris replied with a smile. "Steve called me a few days ago, mentioning that Microsoft had reached out to him, hoping he would leave Yahoo to join their upcoming Internet division."
The Steve Chris referred to was Steve Mitnick, who was responsible for Yahoo's technical department and a good friend of Chris from college. In Eric's view, of Yahoo's top management -- Ian Gurner, Jeff Locke, Steve Mitnick, and Tina Brown -- Steve Mitnick was the most critical for Yahoo because he oversaw the core technical R&D for most of Yahoo's major Internet products. If he were poached, Yahoo would undoubtedly face a protracted period of turmoil.
Thus, this news shocked Eric, leading him to instinctively ask, "Really?"
Chris nodded. Seeing Eric's worried expression, he added with a smile, "But you really don't have to worry. I know Steve's character very well. Since he called me, he surely isn't going to leave Yahoo."
Eric couldn't completely set his worries aside, asking, "What about the others?"
*****
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