Cingular wins bid for AT&T Wireless

The deal is worth $41B and would create the largest company in the U.S. wireless market

Cingular Wireless announced today that it has agreed to buy AT&T Wireless Services Inc. for about $41 billion, or $15 per share.

The deal, which still requires standard approval from AT&T Wireless shareholders and federal regulatory authorities, would create the largest company in the U.S. wireless market, with 46 million customers, Cingular said. The deal is expected to be finalized by the end of the year, Cingular said.

The deal was signed in New York around 2 a.m. after a weekend of bidding and counterbidding between Cingular and Vodafone Group PLC, according to U.S. media reports.

Vodafone Group PLC, Europe's largest mobile phone company, said it withdrew from the bidding after it "concluded that it was no longer in its shareholders' best interests to continue discussions." The company, based in Newbury, England, said it remains committed to its current partnership in Verizon Wireless, the dominant operator in the U.S. wireless market.

Vodafone owns a 45% share of Verizon Wireless in a partnership that is now four years old. Verizon Communications owns a controlling interest in the mobile phone company.

"It really is a fairly simple story from our side today. In pursuing AT&T Wireless, we were attempting to see if we could create more shareholder value than we currently have with Verizon," said a Vodafone spokesman who declined to be named.

"This was not a question of price, since a company the size of Vodafone has access to funding. We had laid down a benchmark in terms of price early on. Beyond that benchmark, there was no point in proceeding as no value was created for shareholders," he said.

Representatives from Cingular, in Atlanta, and AT&T Wireless Services couldn't immediately be reached for comment.

The purchase of AT&T Wireless by Cingular will consolidate the U.S. wireless market from six major companies to five. The other four companies are Nextel Communications Inc., T-Mobile USA Inc., Sprint Corp. and Verizon.

Cingular is currently the second-largest wireless company in the U.S., with 24 million subscribers. The operator is jointly owned by SBC Communications Inc. in San Antonio, which owns 60%, and BellSouth Corp. in Atlanta, according to the company's Web site.

AT&T Wireless employs approximately 30,000 people in some 500 locations across the U.S., and as of the end of 2003 reported about 22 million consolidated subscribers, the company said. AT&T Wireless split from AT&T Corp. in July 2001 to become an independent company.

Along with creating the largest Global System for Mobile Communications (GSM) network in the U.S., Cingular's acquisition of AT&T Wireless will speed the company's ability to offer advanced wireless data services and upcoming third-generation (3G) services to customers due to its improved spectrum holdings, Cingular said.

Should the deal between Cingular and AT&T Wireless receive full approval, the newly combined company will knock Verizon Wireless from its current No. 1 position in the U.S. wireless market to No. 2, with 36 million subscribers.

"Vodafone really wanted the GSM footprint that AT&T Wireless would have provided, and it won't be happy with the No. 2 position," said Paolo Pescatore, senior analyst at IDC in the U.K. "The question now is, What will Verizon do to re-establish its position?"

Julian Hewett, chief analyst at U.K.-based IT consulting firm Ovum Ltd., expects Cingular to lead with consumers in the U.S. wireless market, but Verizon Wireless to continue to lead the business market, partly because of its new CDMA2000 1x EV-DO high-speed data services.

"I imagine Vodafone and Verizon Communications will reassess their relationship now and they may decide that they have got to make the best of it," Hewett said.

For example, with 3G, the technical differences between GSM and CDMA will decrease and roaming in the U.S. may become possible for Vodafone's business customers. "Vodafone currently roams on T-Mobile's network, but it is a pretty big disadvantage to have your customers -- European business travelers -- roaming on another network."

According to Hewett, Vodafone and Verizon Communications may decide to develop a virtual 3G service on Verizon Wireless' network or attempt to acquire Sprint, which has 15.5 million customers.

The spokesman from Vodafone declined to speculate on the company's plans but didn't rule out future acquisitions. "The relationship between Vodafone and Verizon Communications is a very special partnership," he said. "Verizon Communications has made no secret of its desire to acquire a greater share of Verizon Wireless, and it has been that way for a very long time. That was what allowed us to look into the AT&T Wireless deal, but I wouldn't read too much into that in terms of our future relationship."

The Cingular acquisition of AT&T Wireless is actually a good thing for Vodafone, he said, because it reduces the competition in the market. "This deal should be better for Verizon. Less competition is always better."

Hewett expects the U.S. wireless market to experience further consolidation, resulting in three or four major providers, with Sprint and T-Mobile being the most vulnerable to consolidation within the market.

As for consumers, Hewett and Pescatore both believe that the U.S. market is still developing and will continue to be highly competitive, which should benefit consumers.

"Generally, less competition means higher prices for users, but it is still going to be very competitive as, unlike the European market, there is still plenty of room for growth and for improved network coverage in the U.S.," Hewett said. "Prices for services may come down somewhat in such a continually competitive market."

Copyright © 2004 IDG Communications, Inc.

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