VoiceStream, Cingular To Tie the Knot?

In a deal that would begin the long-expected consolidation of the fragmented
U.S. cell industry, Cingular Wireless was reportedly nearing a deal to
combine with VoiceStream.

According to a report in Friday’s Financial Times, the two wireless
companies could close a deal as soon as next month, while management
structure and certain capital-control issues remain sticking points.

The deal between the No.2 wireless carrier in the U.S. and Deutsche
Telekom’s VoiceStream would further narrow the gap between Cingular and No.
1 wireless carrier Verizon Wireless.

Cingular is a joint venture of BellSouth and SBC Communications.

DT has long thought to be looking at options for VoiceStream, which it bought in a $31 billion deal in July 2000. After the wireless euphoria
faded, shareholders criticized the deal, engineered by DT’s CEO Ron Sommer,
which added to DT’s $66 billion mountain of debt. Sommer was eventually
forced out as CEO in July.

With Sommer gone, interim chief executive Helmut Sihler has been charged
with reducing the company’s debt burden, even if it means selling off
VoiceStream at a steep discount to the price DT paid two years ago.

VoiceStream remains an attractive asset. Despite slow subscriber growth at
most wireless carriers, VoiceStream has continued to build its
customer base
, adding over a half million customers in the second
quarter.

With continued subscriber growth and a steady revenue stream, VoiceStream
has been at the center of many merger rumors, with DT confirming in late
July that it was in talks to combine with No. 3 carrier AT&T Wireless.

VoiceStream remains a middling presence in the wireless market, ranking as
the No. 6 carrier with 8 million subscribers. Verizon Wireless, in contrast,
boasts nearly four times that many.

Deutsche Telekom already decided to jettison the VoiceStream brand,
beginning the process of re-branding the wireless service under its T-Mobile
unit. Some analysts have speculated that DT might float T-Mobile in an
initial public offering as a way to pay down its debt, in order to avoid
selling off VoiceStream.

According to a separate report Friday, DT executives said those talks
continue, making a Cingular deal far from a sure thing. Reuters quoted an
unnamed source at DT calling the Cingular talks “at a very early stage.”

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