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Tuesday, October 26, 2004 - Page updated at 12:00 AM

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Cingular completes deal for AT&T Wireless

Seattle Times business staff

Eight months after winning a high-stakes bidding war, Cingular Wireless today completed its acquisition of AT&T Wireless, creating the nation's largest cellphone carrier.

With that, the company started by wireless pioneer Craig McCaw became part of Atlanta-based Cingular, ending two decades of having a separate identity.

The closing of the $41 billion cash deal came after the Department of Justice and the Federal Communications Commission (FCC) approved it with terms requiring Cingular to shed assets and broadcast spectrum in markets across the country.

The FCC said Cingular must sell part of the combined company's operations in 22 of 734 markets, while the Justice Department yesterday imposed sales in 13 areas, some the same as the FCC. The requirements are intended to prevent the two companies from controlling too much of the cellphone business in an area.

Cingular Chief Executive Stan Sigman said in a phone conference today that he thinks there's no need for the company to divest assets to preserve competition, but "obviously we will support the order" and proceed with the merger.

Sigman said the deal will benefit customers by providing a broad reach stemming from "the largest digital voice and data network in the nation."

"The bottom line is we will improve the wireless experience for customers nationwide," he said.

The AT&T Wireless identity will be phased out as the combined company will carry the Cingular name. Together, the two companies have 46.7 million subscribers, surpassing Verizon Wireless' 40.4 million, though some losses are expected.

For the Seattle area, the acquisition sparks concern about what presence Cingular plans to have in the area — its headquarters will remain in Atlanta — and the deal's impact on the 5,700 jobs Redmond-based AT&T Wireless has in Washington state.

Cingular officials indicated some operations will be maintained in the area, but there will be layoffs, though that process won't begin until next year.

Over the next few weeks and months, the two companies plan to work out details on how they will integrate their operations and how many of the 68,000 people the two employ will lose their jobs.

"I don't know because I don't know how much downsizing is there," Sigman said when asked about how many jobs would be trimmed. "We've just been able to look at half of the company and make assumptions about what the other half of the company looks like.''

Cingular, a joint venture between SBC Communications and BellSouth, expects economies of scale to result in $1 billion in savings in 2005 and $2 billion a year after that.

The merger came after AT&T Wireless put itself on the block early this year in the wake of service and technological problems it endured in the fourth quarter last year. Largely as a result of those problems, the company had a heavy loss of customers, and the results showed on its bottom line.

That led to AT&T Wireless being placed up for auction, which ultimately resulted in a bidding war between Cingular and Vodafone, the giant Newbury, England-based wireless carrier. After going back and forth over several days, Cingular emerged the winner with a bid of $41 billion, or $15 a share.

One commonality between AT&T Wireless and Cingular is their underlying technological GSM and GPRS (data) platform. In addition, AT&T Wireless has introduced high-speed data technology, including the so-called 3G service that represents the next generation of wireless services. That technological edge was an attraction to Cingular.

One challenge for the combined company will be to maintain a level of customer support and service to minimize the consumer ire that often characterizes the cellphone business. In addition, the combined company is likely to incur heavy marketing expenses to retain as many of its 46.7 million subscribers as possible — this in a business where customer turnover, or churn, is always a concern.

Advocacy groups, including the Consumer Federation of America, opposed the merger, contending it would reduce competition. The result, they said, may be higher prices.

"This merger will have a devastating impact on consumers, who may have to pay more and may not receive the same level of service they currently enjoy," said Mark Cooper, director of research at Consumer Federation of America. "It also will gut the incentive for these companies to come out with new and innovative products and services."

But FCC Chairman Michael Powell, in a statement accompanying the agency's approval of the deal, said: "Cingular will emerge a stronger competitor with better coverage, improved customer service and a renewed commitment to innovation."

One commissioner, Micahel Copps, expressed concern that the deal will result in one carrier having more than 50 percent share in some markets. He also noted that it could lead to less competition between wireless and wireline companies because AT&T Wireless was not affiliated with a conventional phone carrier, as Cingular is.

With the deal completed, the chapter closes on what began as McCaw Cellular Communications, the first national wireless carrier, which was sold in 1994 to AT&T. Many of the leaders in the Seattle area's wireless industry came out from under the McCaw umbrella.

Material from Bloomberg News and the Associated Press is included in this report.

Copyright © 2004 The Seattle Times Company

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