CNN, CBS and Infosync report that Cingular Wireless, the nation’s No. 2 mobile phone provider, won the bidding war to acquire third-largest AT&T Wireless for nearly $41 billion, a deal that could create the nation’s largest cell phone company.
The merger was announced Tuesday as Britain’s Vodafone Group PLC withdrew from the four-day bidding contest. Cingular said combining the two companies should provide $1 billion in savings by 2006 and more than twice that in starting in 2007. Cingular recently bought NextWave’s PCS frequencies for $1.4 billion which may enable AT&T/Cingular to offer W-CDMA services.
| After merger of AT&T Wireless & Cingular Source: Wall St Journal 2/16/04
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“This combination is expected to create customer benefits and growth prospects neither company could have achieved on its own and will mean better coverage, improved reliability, enhanced call quality and a wide array of new and innovative services,” said Stan Sigman, president and chief executive of Atlanta-based Cingular.
Cingular, a joint venture between SBC Communications Inc. and BellSouth Corp., said its winning bid was for $15 per share in cash, an amount that would value AT&T Wireless at $40.7 billion. Cingular will also assume $6 billion of debt owed by AT&T Wireless.
The agreement is subject to the approval of AT&T Wireless shareholders and regulatory authorities.
Combined, Cingular and AT&T Wireless have 46 million subscribers, enough to leapfrog Verizon Wireless’ market leading customer base of 37.5 million.
The companies did not say how many layoffs might result from the deal. David Caouette, spokesman for AT&T Wireless, indicated some employees would be affected because large-scale mergers create “duplicate functions” that can be eliminated. AT&T Wireless had already planned to cut 1,900 jobs from of a work force of 31,000 by the end of 2005.
John D. Zeglis, AT&T Wireless chairman and CEO, said in a statement that the transaction means “a handsome return” for investors, advantages for customers and more opportunities for employees.
One wireless industry number-cruncher points out, Cingular’s deal makes each AT&T Wireless subscriber worth $1,860. That’s one reason you pay through the nose for cellular service. AT&T reportedly paid over $4,000 per subscriber when they aquired TCI cable systems. Debt servicing and growth is the name of the game. Cost-based pricing? Not.
Cingular, which had 23.4 million customers late last year, opened its bidding at $13 a share, or $35 billion, two sources told The Associated Press on condition of anonymity. It then raised its offer to $14 a share early Monday. Vodafone matched Cingular’s offers in each stage of the process, a source said.
After announcing it had dropped out, Vodafone said Tuesday that it remained “committed to its existing position in the U.S. market with its successful partnership in Verizon Wireless.” The carrier, based in Redmond, Wash., has more than 22 million subscribers, including a sizable base of corporate clients who tend to use more services and spend more money. SBC Communications Inc. owns 60 percent of Cingular, while BellSouth owns 40 percent.
Where will it stop?
Let’s speculate on the obvious; a merger between Verizon and Sprint would result in some 53 million subs. That would enable Sprint to back off on upgrades until EV-DV is ready (another year or two). That would save money in addition to other cost savings (hello, India). Sprint’s got MMDS frequencies and could deliver 802.16a/e, too.
Meanwhile, T-Mobile has not been a fan of “3G”. Nextel and T-Mobile both invested in Flarion’s “4G” system. Nextel’s “4G” trial in North Carolina is one example. If Nextel doesn’t get their “Consensus Plan” approved, they’ll need more cellular frequencies. T-Mobile’s got ‘em. They could share “4G” space and some 25 million subs.
That would leave (1) Verizon/Sprint (53M), (2) ATT/Cingular (46M) and (3) T-Mobile/Nextel (25M)
Can W-CDMA compete with “4G”? AT&T has the penetration but users may love “4G” once they try it. Size doesn’t count. It’s performance. AT&T/Cingular may be a flash in the pan.
Just like Michael Armstrong’s $100B TCI cable deal.
