Telepocalypse

Unconstrained

To those familiar with Goldratt's Theory of Constraints, Cingular's win over Vodafone will come as no surprise. As Om Malik reminds us, Cingular was constrained from growth by spectrum availability. With rising network usage, its ability to service even its existing customers was coming under strain. A key stage in TOC is elevation of the constraint. Since Cingular are (excuse the pun) technologically constrained in their ability to make more efficient use of spectrum and exploit the constraint, acquision was the only way forward -- at whatever price it took. Which, presumably, Vodafone knew as well, and exacted the full price.

The irony is that Vodafone may not come out of this so well after all. Rationalization will help prop up prices (although competition remains fierce, with many regional players in bigger markets). Spectrum shortage will discourage entrants. And the high price Cingular paid will discourage them from competing on price, because they need the cash flow. This raises returns across the industry. Stock values of all the wireless carriers are rising fast. Verizon becomes even more expensive to buy out, others are less attractive to buy up.

Perhaps Vodafone should have been bold a year ago when the market was still weak, rather than waiting for events to overtake them? Easy to throw stones from the blogside, but if you're a CEO being paid an eight-figure salary, the expectation is your foresight exceeds my hindsight.