WASHINGTON-The fanfare surrounding final government approval of Cingular Wireless L.L.C.’s $41 billion acquisition of AT&T Wireless Services Inc. proved to be short-lived, with Moody’s Investors Service downgrading long-term debt ratings of the new No. 1 mobile-phone carrier and its two Bell telephone parent companies.
Moody’s-pointing to wireline competitive pressures, network upgrade costs and potential wireless merger snags-said the ratings outlook is negative for SBC Communications Inc., 60 percent owner of Cingular, and BellSouth Corp., which holds a 40-percent stake in the Atlanta-based mobile-phone operator. Moody’s said the ratings outlook for Cingular and AT&T Wireless is stable.
The “integration of AT&T Wireless into Cingular may prove more difficult, expensive and time consuming than expected, and when coupled with the service requirements associated with Cingular’s assumption of AT&T Wireless’ debt, will lead to lower earnings and distributions to SBC and BellSouth than currently anticipated by the companies,” Moody’s stated.
The high, strategic priority SBC and BellSouth attach to Cingular Wireless-reflected in their funding of the wireless merger-makes it more likely the two parent companies will have to support Cingular in the future. Meantime, Moody’s said its ratings outlook for Cingular reflects its view that the wireless carrier’s post-merger size and scale “will significantly enhance its competitive position.”
Aside from administrative, business and technical challenges of combining two national wireless operators, Cingular will face competitive pressures in the evolving third-generation wireless market from dethroned Verizon Wireless and other national mobile-phone service providers. 3G networks require significant capital outlays for wireless carriers, a reality that could be complicated for Cingular if lower debt ratings make borrowing for SBC and BellSouth more costly.
“From the start, we have seen deep synergies between our two companies-in compatible technologies, operations and systems; rich histories of product innovation and more importantly, a management team with unmatched wireless experience,” said Stan Sigman, who will continue as president and chief executive officer of Cingular. “We have taken some of the best talent from both companies and brought them together to drive the next wave of innovation and growth in the wireless industry.”
During merger reviews by the Justice Department and Federal Communications Commission, Cingular made a bold commitment to bring 3G services to rural areas of the country. The commitment helped assuage concerns raised during the merger review that rural consumers and rural wireless carriers could be hurt by the merger, but the promise could prove costly.
“It’s a new day for wireless customers in America. We are committed to improving the wireless experience and giving customers the coverage, the phones, the capabilities and the call clarity they deserve,” said Sigman. “We are also committed to expanding our high-speed third-generation services to the ever-growing community of mobile data users. And Cingular is laying the foundation to enable rural carriers to bring 3G services to rural America.”
Rounding out the new Cingular’s leadership team are Ralph de la Vega, who continues at his current post of chief operating officer; Pete Ritcher, chief financial officer; Thaddeus Arroyo, chief information officer; Rick Bradley, executive vice president of human resources; and Marc Lefar, chief marketing officer.
The Cingular-AT&T Wireless deal closed several hours after the FCC conditionally approved the merger yesterday morning. Justice signed off on the deal Monday, which also required Cingular to divest wireless assets in more than a dozen U.S. markets.
Cingular will continue to be headquartered in Atlanta.
