Clock Ticks on AT&T Wireless 3G Obligations

In 2000, NTT DoCoMo paid $6 billion for a 16 percent stake in AT&T Wireless . As a condition of the Japanese telecom’s investment, AT&T wireless agreed to launch third-generation mobile services in 13 of the top 50 U.S. markets by June of 2004.

DoCoMo hoped to win new users for its i-mode mobile phone platform in the United States. But when the economy soured the pact was recast to cut the number of cities to four and extend the timeline six months.

In return for its partner’s concessions, AT&T Wireless pledged to meet the revised targets or repay DoCoMo’s entire investment. The clause takes on new importance as AT&T Wireless announced yesterday that it will sell to Cingular for $41 billion cash.

Provided it passes muster with regulators and shareholders, the blockbuster merger will close just before AT&T Wireless’s 3G deadline.

“(The 3G commitment) is absolutely still in effect and it is something we don’t intend to trigger,” AT&T Wireless spokesman Peter Rowe told internetnews.com.

Base stations and other advanced network gear were ordered from Nortel and Ericsson for the project in July, AT&T Wireless said. Aside from that, details of the plan are hazy.

At one time, Dallas, San Diego, San Francisco and Seattle were identified as the first markets, with Detroit, Houston, Miami and Phoenix tabbed as backups. Now, Rowe’s AT&T Wireless colleague, Mark Siegel, said choosing trial cities is “still something we’re sorting out.”

In takeovers, the new owner assumes outstanding bills and contractual obligations. Cingular, which negotiated for a month before submitting the winning bid early Tuesday morning, did its homework and is certainly aware of the DoCoMo commitment.

Kent Evans, a Cingular spokesman, said the move is something the company expects AT&T Wireless to honor before the merger.

“We’ll be doing (3G) in a couple of markets as well,” Evans said, adding that the disparate trial data will help the company gauge demand and performance of the services such as video messaging.

The coming 3G tests from Cingular, an Atlanta joint venture between SBC and BellSouth , will not count toward AT&T’s total, Evans said.

3G service, based on the Wideband Code-Division Multiple Access standard, features transfer speeds that support two-way video telephony and other bandwidth-consuming applications. The technology is popular in Japan where the 3G market will reach 69 million subscribers by 2007, according to IDC.

To date it’s been slow to grow in the United States. But with $6 billion hanging in the balance, AT&T Wireless appears to be sufficiently motivated to jumpstart its effort.

There is “no chance in the world” AT&T Wireless will miss the target, Seigel said.

Lynda Starr, vice president of U.S. carrier research at Probe Group, also expects AT&T Wireless to meet its obligation to avoid a huge financial headache, not to mention a messy situation with its new parent.

“I think they’re going to roll this out, but I can’t see that they’re going to do a lot with it,” she said.

A spokesperson at DoCoMo’s Tokyo headquarters was not immediately available for comment. The company said it was weighing its options about its future financial and technological interest in AT&T Wireless.