Cell Phone Mergers Not Bad News for Papers, Yet

By: Mark Fitzgerald During the newspaper recession and the last few years of shaky recovery, wireless telephone service providers were aggressive and steady advertisers, all the more important because they pumped up revenues in the anemic national-ad category.

But with Wednesday's announcement of the $35 billion merger of wireless giants Sprint and Nextel Communications -- which comes two months after Cingular's $41 billion acquisition of AT&T Wireless -- newspapers now must ask: With all this consolidation, will cell phone service providers hang up on newspapers?

The short answer, according to two newspaper analysts, is that wireless will continue to be a good advertiser for at least another year -- and perhaps longer.

For individual newspapers, there's a lot riding on the question.

Consider Wednesday's editions of the Chicago Tribune and Chicago Sun-Times. Both carried an 8-page special wireless FSI (free-standing insert) from Best Buy, and the Trib had an insert from Sprint. The tabloid Sun-Times had five full-page ROP (run of press) ads for wireless providers, and three that ranged from half to two-thirds of a page. The broadsheet Tribune had three full-page ROP ads, two that were a half-page or bigger, and one that was a third of a page.

Media economist Miles Groves said the immediate impact of the consolidations could actually be a bump in newspaper advertising.

"In the short term, it will lead to more advertising as [wireless companies] explain what is going on, in newspaper ads and other types of media," said Groves, president and economist for Washington, D.C.-based MG Strategic Research Ltd. Cell-phone customers are confused about how the mergers will affect them, forcing the merged company to advertise even more than their separated parts did, he said. "So it wont be a zero-sum game in the short term," Groves said.

The long term, he added, is another matter.

"Longer term, though, as players shrink, I expect it's going to have a negative impact on newspaper advertising," Groves said. Wireless consolidation is following an inevitable pattern, he added. It became inevitable as costs were squeezed down, and cell phones and service became ever cheaper.

The Newspaper Association of America's vice president/market and business analysis, James Conaghan, also believes the merged companies are unlikely to cut newspaper advertising right away. "They are still going to be competing against each other," he said, "and depending on how their plans roll out they might need to keep an aggressive" level of advertising.

Conaghan said there are also reasons to think that wireless may not drop over the long term. For one thing, he noted, the industry is constantly producing new products and technologies that must be introduced to consumers. "It's not like department store consolidation, where technology plays very little part," he said.

There's also the possibility of new players jumping into wireless, he said. Conaghan noted that The Walt Disney Co. intends to roll out a series of branded cell phone services. The first, ESPN Mobile, was announced earlier this month. The service will be launched next year using the Sprint PCS network. It will market ESPN-branded phones, accessories and applications such as sports headlines and streaming video.

How newspaper advertising will be affected by this changed industry is still unclear, Conaghan said: "Net-net, it's a little difficult to figure out exactly the nature of the change one way or another."

Publishers shouldn't let wireless consolidation upset their holidays -- this year anyway, economist Groves suggests. "I don't see this as a 2005 problem," he said. "It may be a 2006 problem, however."