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Cingular, T-Mobile USA joint venture nears finish line

The once-noble joint venture between Cingular Wireless L.L.C. and T-Mobile USA Inc. that allowed each carrier to fill in a significant coverage hole-California and Nevada for T-Mobile USA, New York for Cingular-is nearing an end as both carriers are expected to exchange a series of spectrum licenses at the beginning of 2007.

The venture began innocently enough in late 2000 when T-Mobile USA-then Voicestream Wireless Corp.-and Cingular announced plans to swap spectrum to allow Cingular to get coveted New York spectrum missing from its portfolio while allowing Voicestream to get spectrum that it badly needed in California.

The deal, which was made just a month before the Federal Communications Commission’s attempt to auction spectrum confiscated from NextWave Telecom Inc., quickly evolved into a network-sharing project dubbed Empire. Empire was formed in 2001 and later had to be dissolved as a condition of federal regulatory approval of Cingular’s purchase of AT&T Wireless Services Inc.

Instead of swapping spectrum, Empire would allow the carriers to share each other’s infrastructure and spectrum in New York, California and Nevada, which in addition to allowing each carrier to more quickly fill in their coverage needs, spared them the expense of having to build out redundant networks.

Of course, that all changed in early 2004 when Cingular announced plans to acquire AWS for $41 billion. The deal provided Cingular with a ready-made GSM network in New York and with little need to continue providing T-Mobile USA with access to its network in California.

Seeing the writing on the wall, T-Mobile USA agreed that year to buy Cingular’s legacy GSM operations in California and Nevada for $2.5 billion. The purchase included 10 megahertz of 1.9 GHz spectrum in San Francisco, Las Vegas and Sacramento markets for $180 million. The actual payment to Cingular was about $2.3 million, because of a $200 million fee for unwinding the joint venture. As part of the deal, T-Mobile USA agreed to provide wholesale network services to Cingular for up to four years as Cingular worked to transition its customers to the former AWS network.

None of the spectrum jointly used in the Empire venture changed hands during the term of the joint venture, Cingular spokesman Clay Owen noted. With the dissolution of the venture, however, the two carriers will exchange several spectrum licenses, which essentially equates to each of them getting half of the jointly used spectrum.

According to Cingular, it will receive 10 megahertz of spectrum in the New York basic trading area, as well as the 10 megahertz that it made available for use by the joint venture and 2.5 megahertz that covers Las Vegas. T-Mobile USA is set to receive 5 megahertz of 1.9 GHz spectrum in each of California’s nine basic trading areas.

According to Owen, there is also a provision that if T-Mobile USA is not successful in acquiring an additional 10 megahertz of spectrum in the Los Angeles and San Diego BTAs within 24 months, Cingular will sell 10 megahertz in each of those markets to its smaller rival at a predetermined price.

The spectrum licenses are expected to be exchanged on Jan. 1.

Owen declined to give the number of customers involved because Cingular does not reveal customer numbers on a state-by-state basis. However, he said that Cingular does not expect the unraveling of the joint venture to affect its churn rate.

T-Mobile USA declined to comment on any network-related issues, due to its participation in an upcoming spectrum auction. In the carrier’s last quarterly report, however, T-Mobile USA noted that its pot of “other revenues” that includes Wi-Fi, colocation rental income and wholesale revenues from Cingular customers using its network was down $15 million, or about 7 percent year-over-year.

“The sequential decrease in other revenues … reflects the ongoing migration of Cingular’s customers to their network following the dissolution of our network-sharing venture,” T-Mobile USA said.

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