- The Washington Times - Tuesday, February 17, 2004

Cingular Wireless won a bidding war for AT&T; Wireless Services yesterday to reach a deal that would create the nation’s biggest wireless company.

If Cingular’s massive cash offer for AT&T; Wireless earns approval, the combined company would have 46 million customers — nearly one-third of all U.S. cell-phone users.

Cingular agreed to pay $41 billion in cash for AT&T; Wireless, which put itself up for sale last month. The deal would combine the second- and third-largest U.S. wireless companies.

“Any way you look at it, this combination makes sense,” Cingular President and Chief Executive Stan Sigman said in a conference call with reporters yesterday after the companies agreed on the terms of a deal.

AT&T; Wireless officials approved Cingular’s offer after 2 a.m. yesterday.

Atlanta-based Cingular is barely larger than AT&T; Wireless, which is based in Redmond, Wash., and spun off AT&T; Corp. in 2001. Cingular, a joint venture of SBC Communications Inc. and BellSouth Corp., has 24 million customers, and AT&T; Wireless has 22 million customers.

Their combination will create a company with 30 percent of the 150 million U.S. cell-phone subscribers.

The union of Cingular and AT&T; Wireless would reduce from six to five the number of national cell-phone carriers. That consolidation has consumer groups concerned that subscribers might face higher prices as competition dissolves.

“A move toward greater consolidation cuts at the heart of this growing competition in the telephone marketplace. We can expect to see fewer deals and higher prices, just as we’ve seen with the mergers of cable companies,” said Chris Murray, legislative counsel for Consumers Union, publisher of Consumer Reports.

Patrick McGugan, vice president of Rockville telecommunications research firm Telebright Corp., said it is too early to know how the transaction will affect the cost of cell-phone service.

T-Mobile, the smallest nationwide carrier, and Sprint, the fourth-largest wireless carrier, lead the industry with the most competitive prices, Mr. McGugan said, while many think Verizon Wireless provides the best network coverage.

Cingular and AT&T; Wireless must decide which front it wants to fight the cellular war on, he said. If they want to compete on price, consumers could see some deals coming, despite the concerns of consumer advocates.

The Justice Department and Federal Communications Commission must approve Cingular’s proposed purchase, and both agencies declined comment yesterday.

Analysts predicted regulators will approve Cingular’s purchase because there still would be five companies providing nationwide service.

The companies will argue that regulators should not force them to divest any holdings as a condition of winning approval.

“It’s not the [type of] consolidation, in our view, that would require divestitures, but we will have to put that position before the appropriate parties,” Mr. Sigman said.

Mr. Sigman said the union of Cingular and AT&T; Wireless would lead to better network coverage and would accelerate development of wireless services.

Cingular would collect a $1.4 billion breakup fee if AT&T; Wireless decides against joining the company, according to the terms of the agreement.

Their combination would put them ahead of Verizon Wireless, the nation’s leading wireless company with 37.5 million subscribers.

“Hey, Verizon, can you hear us now?” AT&T; Wireless Chairman and Chief Executive John D. Zeglis asked, making light of his competitor’s advertising campaign.

Cingular outbid Britain’s Vodafone for AT&T; Wireless. Cingular increased its offer from an initial bid of $30 billion.

In addition to paying $41 billion, Cingular will assume about $6 billion of AT&T;’s debt. Cingular’s offer translates to $1,863 for every AT&T; Wireless subscriber.

Cingular’s parent companies will fork over the cash for AT&T; Wireless. SBC will put $21 billion toward the purchase, and BellSouth will contribute $15 billion. AT&T; Wireless will offset the $41 billion purchase with the estimated $5 billion in cash it will have on hand at the time the transaction closes in the fourth quarter.

Cingular will pay $15 a share for AT&T; Wireless, 8 percent higher than its closing price yesterday. AT&T; Wireless shares increased nearly $2 on the New York Stock Exchange to close at $13.78 a share.

Shares of Cingular owners SBC and BellSouth fell on the New York Stock Exchange. SBC shares fell 18 cents, closing at $24.87, and BellSouth shares fell 49 cents to close at $29.06.

The combined company expects to save $1 billion in operating costs in 2006 and at least $2 billion a year beginning in 2007.

But Cingular Chief Financial Officer Rick Lindner said integration of the two companies will cost about $900 million in 2005.

Mr. Sigman said the combined company is trying to position itself to go after a growing market of cell-phone users. He told investors in a conference call that wireless companies expect to add 80 million U.S. subscribers in the next 10 years.

Cingular and AT&T; Wireless have a combined work force of 68,000 employees — 917 in the metropolitan Washington area — and the new company would eliminate some jobs. But Mr. Sigman declined to say how many people would be fired.

“There will have to be and will be synergies around wages and salaries,” he said.

Mr. Zeglis said he will leave the combined company, which would keep the Cingular name and maintain its Atlanta headquarters.

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