First AT&T...Now Cingular
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After merger talks with AT&T wireless came to unresolved halt several weeks ago, VoiceStream has reportedly proposed a merger with Cingular Wireless, a combination that could challenge market leader Verizon Wireless.
A report in today's issue of the Wall Street Journal notes that the talks are at a very early stage and could break down before any deal. Any transaction between Cingular and VoiceStream could face regulatory hurdles as well as opposition from either of Cingular's owners, SBC Communications Inc. and BellSouth Corp, the report said.
Last week, the New York Post reported that VoiceStream's parent, Deutsche Telekom, had hired Goldman, Sachs, J.P. Morgan Chase, and Deutsche Bank to look into strategic opportunities, including a merger.
According to today's WSJ item, while the two companies have yet to iron out specific terms, sources cited as close to the situation say VoiceStream has approached Cingular about merging the two companies in a complicated deal that would leave Cingular as the controlling shareholder.
A merger among the North American cellular giants is viewed by many observers as an inevitable trend. According to Keith Waryas, a wireless research manager for IDC, the push to consolidation stems largely from a mass market-driven increase in cost of customer acquisition.
"What's really been driving the market is price and with that level of price competition, if you have so many players in the market, it puts added pressure (on providers)," said Waryas. "With mergers, things will slow down a bit and lower the cost of acquisition which will likely be key."
Analysts believe Cingular would be a good fit for VoiceStream. For Cingular, the deal would shore up the company's weakest link: its relatively poor spectrum position. According to a recent Banc of America Securities Study, Cingular still has 10 percent less coverage than AT&T Wireless, Verizon Wireless and Sprint PCS in the country's top 100 markets.
In addition the carriers sharing of the GSM format would aid the move.
"It's a good fit from the perspective that they're both GSM carriers, so that they're not going to have any of the usual air interface problems that you have seen with operating multiple networks," said Waryas.
Cingular started a network-sharing agreement with VoiceStream for the New York market last month, but owning the spectrum there would be significantly cheaper.
According to Waryas, Deutsche Telekom AG, who owns VoiceStream is much more likely to merge, than to sell outright, as the amount paid for the carrier a few years ago was exorbitant from its current market value.
He further speculates that if the deal were to go through, SBC, 60 percent owners of Cingular, might divest itself of the wireless carrier.
"For regulatory purposes, this would open the door for (SBC) to get into bed, or purchase outright, another wireless carrier. That could become much more likely if the deal goes through," said Waryas, who noted that rumors had been circulating about SBC's interest in Sprint PCS.
The remaining share of Cingular is owned by BellSouth.
Neither Cingular nor VoiceStream could be reached for comment.