First AT&T…Now Cingular

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.


In other Cingular news, the company said it would cut between 2,500 and 3,000 jobs,
or roughly 7 percent of its work force, through a combination of layoffs and attrition.


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.

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