When Cingular Wireless L.L.C. closed on its purchase of AT&T Wireless Services Inc. in late 2004, the company poured out an estimated $300 million in marketing during the fourth quarter of that year, sending out everything from a “wedding” invitation touting the joining of the two companies to flipping 11,000 AT&T Wireless stores into Cingular stores in a single day.
In the first half of 2005, Cingular’s advertising spending exploded by nearly 107 percent to $670.7 million. The company did all it could to snuff consumers’ memories of the AT&T brand, migrating customers to Cingular phones and plans, although a significant number of customers had already fled prior to the merger-pushing AT&T Wireless Services Inc.’s churn to 3.7 percent in the third quarter of 2004.
Now, less than two years later, Cingular’s parents SBC Communications Inc.-since renamed AT&T Inc. following SBC’s acquisition of AT&T Corp.-and BellSouth Corp. are merging into one under the AT&T brand.
AT&T announced last week that it was going to purchase BellSouth in a $67.1 billion, all-stock transaction. The deal is expected to take about a year to close, and if it goes through, the Cingular brand would be replaced with the very AT&T brand that Cingular tried to stamp out. Still, the consolidation of Cingular’s parent companies is generally seen as a positive for the wireless operator.
“It relieves Cingular of the often problematic issue of having two parents with different assets, strategies and services, which had limited the wireless operator’s ability to offer a consistent set of nationwide consumer and business solutions,” said analyst William Ho of Current Analysis Inc.
“I don’t really see that many operational impacts,” said Jonathan Atkin, telecom analyst for RBC Capital Markets. “All things being equal, it maybe clarifies things to have one owner rather than two.”
One significant plus for Cingular, Atkin added, is the potential to have a much larger footprint within which to cross-sell services and market bundles that include wireless. The new AT&T has made it clear that a bundle of quadruple-play video, landline voice, wireless and high-speed Internet services is a top priority, and the acquisition of BellSouth would give the company total control of its wireless component.
The boards of BellSouth and AT&T have already approved the acquisition, which also must receive a thumbs-up from stockholders and U.S. anti-trust regulators. The deal would put AT&T back on top as the largest telecommunications company in the United States-and, in fact, the world-after its earlier iteration was broken up into eight smaller companies by the federal government in 1984.
Wireless would generate about one-third of the combined company’s revenue in 2007. AT&T and BellSouth said that another benefit the deal would quickly generate would be to “streamline and enhance management and operations at Cingular.” The united company expects to slash as many as 10,000 jobs between 2007 and 2009, according to a company presentation to analysts. Consumer groups have indicated that they will protest the resurrection of Ma Bell, but most experts expect the merger to go through with few onerous conditions imposed upon it.
AT&T and BellSouth expect to generate more than $2 billion in synergies annually, beginning in the second year after closing, and estimate the net value of merger-related synergies at $18 billion. Most of the savings are expected to come from consolidating network operations and IT; other areas include combining staff functions, reduced branding expenses and reduced costs in “the operations of unregulated and interstate services, and corporate staff.” Three BellSouth board members would join the AT&T board once the deal closes.
The new AT&T kicked off 2006 with an enormous ad campaign to put the brand back in the spotlight. Presumably some of that advertising power would be used to promote its wireless brand-though industry observers note that the old AT&T Wireless brand may not have left customers on a positive note.
“AT&T’s last days were not its best,” said Dominic Endicott, wireless practice leader at Adventis. Sprint Nextel Corp. Chief Executive Officer Gary Forsee noted that “AT&T [Wireless] as a brand had some challenges and issues. So we look forward to the chance to compete against that brand once again.”
Still, analysts observed, the Cingular brand itself is only five years old, and that a mere change in name doesn’t change the underlying network that more directly determines how happy customers are with their cellular service.
“It’s not the most elegant transition, and I’d say it’s going to have some teething pains for the next couple of years, but after awhile it won’t be a big deal,” said Endicott. “If you’re misfiring on your coverage, or dropped calls or blocked calls that will really matter.”
“I really think if the damn phone is working then they’re happy, and care less about that brand,” said Bob Egan of Tower Group.
