All Eyes On Cingular As AT&T, BellSouth Merge

Merge company is expected to move ahead more aggressively with its Cingular Wireless unit, already the largest cell phone service provider in the country.

March 6, 2006

4 Min Read
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AT&T's acquisition of BellSouth will enable the new company to move ahead more aggressively with its Cingular Wireless unit, already the largest cell phone service provider in the country.

In the announcement of the merger Sunday, the firms stressed the importance of the wireless operation.

"AT&T had to have full control of wireless," said Pete Wilson of telecommunications consultancy Telwares in an interview Monday after the dust settled on the merger announcement. "Wireless is chiefly where the growth is in the industry. In enterprise sales deals, both Cingular and AT&T were often hamstrung because they were competing with each other." And, AT&T also needed to clear Cingular business with BellSouth, which owned 40 percent of Cingular.

Wilson, who is vice chairman of Telwares, said the massive $67 billion merger that places AT&T in the top position as the country's largest telecommunications company is likely to elicit a response from number two player Verizon Communications. He expects Verizon to make an acquisition bid for Qwest Communications International, the last remaining former Regional Bell Operating Company (RBOC).

"Clearly, Verizon has to go after Qwest now," said Wilson. "Verizon will have to keep AT&T from getting it." Qwest stock jumped 5.5 percent in early market trading Monday, in an indication investors think the Colorado-based RBOC will be a takeover target.BellSouth has taken a more conservative path in recent years, allowing AT&T, which was formerly the Southwestern Bell RBOC, to be more competitive.

The merger also takes place as the telephone companies continue to installing fiber optic cable in their respective regions in an effort to compete with cable companies. While the cable companies have been poaching on the telecommunications firms' traditional telephone service, the former RBOCs believe that they can gain by installing TV-capable fiber, which has a much higher throughput than co-ax cable.

Initially, though, AT&T is expected to push its Cingular Wireless operation vigorously. "The merger will streamline the ownership and operations of Cingular Wireless, which is jointly owned by AT&T and BellSouth," AT&T and BellSouth stated. "The new company will be more innovative, nimble, and efficient, providing benefits to customers by combining the Cingular, BellSouth, and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions."

The proposed acquisition was immediately condemned by consumer groups, which complained that Ma Bell's old AT&T, which was broken up by the federal government 22 years ago, is gradually being reassembled, much to the detriment of consumers.

"If approved, this merger will lead to higher local, long distance, and cell phone prices for consumers across the country," said Gene Kimmelman, vice president for federal and international affairs for Consumers Union, in a statement. "The government has been deceived before by promises that somehow more concentration would produce more choices and competition, when the result has been just the opposite."

Another consumer organization, the Consumer Federation of America, argued that telecommunications has moved from the old AT&T-regulated monopoly to "an unregulated duopoly with just two major players."However, the telecommunications landscape has changed drastically, particularly in recent years, as cable, cell phones, and VoIP calling have caught on, presenting competition to traditional landline telephony.

"But AT&T and BellSouth together are not anywhere near reconstituting a monopoly," said Wilson, noting the plethora of new technologies that have appeared in telecommunications. He observed that the government quickly approved SBC's acquisition of AT&T and Verizon's acquisition of MCI last year, and he expects the government to approve the BellSouth-AT&T merger.

The merger caps careers of AT&T's chairman and chief executive Edward E. Whitacre Jr. and BellSouth's chairman and CEO Duane Ackerman. Both executives are close to retirement, but both said they will stay on to see that the merger progresses smoothly.

An unfettered Cingular will enable AT&T to move quickly. Although Cingular is the largest cell phone service provider in the U.S., it has been losing ground to Verizon Wireless, which has been gaining new subscribers at a faster rate and which has consistently logged high consumer ratings.

"Whitacre is obviously thinking five to ten years down the road here," said Wilson. "He folded in the old AT&T long distance operation quickly. I think AT&T will integrate the wireless and wireline operations quickly, too."0

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