The union of Cingular Wireless L.L.C. and AT&T Wireless Services Inc. gives new meaning to The Great Experiment.
Indeed, nothing approaching it-in scale, complexity and consequence-has ever been attempted in the spectacular 21-year-young history of the cellular industry. Cingular, 60-percent owned by SBC Communications Inc. and 40-percent owned by BellSouth Corp., is in uncharted territory. Sure, SBC has experience with major acquisitions. But none involved the high stakes of this one.
The blockbuster merger makes perfect business sense in almost every way, given the limits of Cingular and AT&T Wireless as separate companies, the promise of the two as one and the disheartening outlook for the landline businesses of SBC and BellSouth.
Much hoopla accompanied the first big wireless merger of the Big Six. But an argument can be made that combining Cingular and AT&T Wireless was as much about wireline as it was about wireless. The merger can be seen as a $41 billion insurance policy against disruptive technological incursions into the eroding landline market.
Challenges are everywhere. The integration of corporate cultures, different billing systems, accounting, retail sales, on and on. Even before the ink dried upon the deal, Moody’s Investors Service lowered long-term debt ratings for Cingular and its two Baby Bell parents.
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,” stated Moody’s.
Two days later, Verizon Wireless announced it added a record 1.7 million subscribers during the third quarter of this year, ending the first nine months of the year with 42.1 million total subscribers. In other words, the dethroned mobile-phone carrier is catching up to the Atlanta-based carrier that just paid $41 billion to become No. 1. What will the numbers look like six months from now? SBC CEO Ed Whitacre confidently says he’s got a plan.
One prong of the strategy supposedly involves a big ad blitz, with appearances from baseball pitching greats Roger Clemens and Randy Johnson. Given the tough odds of making the New Cingular work, Madison Avenue might have gone for Curt Schilling or Johnny Damon or Manny Ramirez.
Meantime, Democratic FCC Commissioners Michael Copps and Jonathan Adelstein are sounding off on the agency’s merger approval. Their beef: On intermodal competition, FCC Chairman Michael Powell is a fraud.
