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AT&T Wireless To Target Cingular?

NEWS ANALYSIS: Analysts are speculating anew that consolidation is coming to the United States wireless industry following a recent rise in the stock prices of some wireless companies -- despite slumping revenues and a glut of services on the market.

"Is the US wireless industry ripe for consolidation? The answer is unequivocal Yes," wrote Deutsche Bank telco analysts Viktor Shvets and Nigel Coe in a recent note. "The US wireless industry is far too crowded and far too fragmented (the number one carrier only controls 23% of national subscribers)."

But the report also said low interest rates are helping companies avoid making the tough decisions associated with consolidation; in addition, it said concern about maintaining credit ratings and strict acquisition criteria among companies with the cash to do a deal are making any imminent transactions less likely.

Still, that hasn't stopped analysts from naming some companies they see as candidates for possible deals.

The companies themselves are staying mum, but analysts are pointing to AT&T Wireless and Cingular as the companies to watch for any potential acquisition or merger discussions that could reshape the sector.

Lisa Pierce, a telecommunications expert and research fellow with Forrester Research told internetnews.com she believes AT&T Wireless could be interested in acquiring the likes of T-Mobile or Cingular. She said Deutsche Telekom, T-Mobile's parent company, is mulling a move out of its stake in T-Mobile, but for a premium; and Cingular may be positioning itself for a takeover.

Recent published reports said Cingular is considering purchasing spectrum from NextWave Telecom for as much as $1.5 billion. Cingular is interested in expanding its coverage into the Los Angeles, Boston and Washington, D.C. markets. NextWave is said to be ready to sell close to 90 wireless licenses around the country, expected to fetch as much as $6.5 billion.

"Since AT&T Wireless has a roaming agreement in place with Cingular, (and) if Cingular buys these licenses, it would make Cingular a more attractive acquisition candidate, because at that point, it would be bringing more to the table," said Pierce.

Analysts said the move would help Cingular address some of its network challenges, notably lack of spectrum allocation and spotty coverage in key markets.

"A number of these issues can be resolved by Cingular acquiring either T Mobile (rich in spectrum and relatively empty network) or [AT&T Wireless] (rich in spectrum, solid coverage and good distribution). We believe that the reason why none of these mergers occurred can be found in relative price expectations," according to the Deutsche Bank report.

Another wireless industry expert said all the consolidation and merger talk is not new. For starters, "it's been leaked 13 ways to Sunday that Deutsche Telekom is looking to divest itself of its U.S. T-Mobile assets," said Eric Goldberg, a wireless industry entrepreneur who consults for major wireless clients.

"Cingular and T-Mobile happen to share several of their networks, so it would be a logical tie-up regarding their overlapping networks and shared business interests," he said.

"At this point, if it happens I might not be surprised. The rumors have been out there for some time," Goldberg said of the chatter about an AT&T Wireless/Cingular or an AT&T Wireless/T-Mobile USA deal.

Forrester's Pierce said she thinks the reason AT&T Wireless is interested in Cingular and T-Mobile is related to all of the companies' support of the GSM and GPRS global wireless standards in their networks. So in addition to existing GSM/GPRS roaming agreements, the companies could swap capacity ahead of a possible deal, she said. "It's not uncommon for carriers to swap out capacity in certain markets that make sense for both parties."

Her call is that an AT&T Wireless-Cingular deal might happen before mid-2005.

Prudential Financial analyst Christopher Larsen also issued a positive report on AT&T Wireless along with a "Buy" rating. Larsen wrote that the recent resale agreement the company struck with its former parent company, AT&T Corp. , gives AT&T a wider range of wireless services to package and opens up new markets for AT&T Wireless.

But Pierce said Cingular's corporate structure would complicate the possibility of a deal, since it is owned by regional bell operating companies SBC Communications and BellSouth . And Goldberg noted that neither RBOCs seem willing to step up to make an acquisition.

"AT&T has better (network) overlap with T-Mobile and presumably would be less expensive" than perhaps a Cingular deal, Goldberg added. In addition, Verizon, the nation's largest wireless carrier, has taken the position that it is not going to acquire any company for the time being, he said, which brings deal chatter back to AT&T Wireless.

If a Cingular-AT&T Wireless deal were to happen, the combined customer base in the company would vault AT&T Wireless to a position as one of the two largest wireless players in the US market, he said, right behind Verizon's roughly 33 million subscribers.

With additional reporting by Erin Joyce

Clarifies Goldberg's quote in the 13th paragraph