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Cingular, AT&T Wireless Merger Approved

By Keith Regan
Oct 25, 2004 9:51 AM PT

The Federal Communications Commission is poised to announce it will allow Cingular Wireless to purchase AT&T Wireless on the condition that the companies divest themselves of some of the customers and airwaves they now control.

Cingular, AT&T Wireless Merger Approved

The Department of Justice (DoJ), which had been weighing the antitrust implications of the US$41 billion mega-merger, also agreed to the deal and the conditions, according to widely published reports that indicate a formal decision will be announced this week.

The deal, first announced in February of this year, would create the largest single wireless carrier in the U.S. It would also reduce the number of major carriers from six to five, something consumer advocates have expressed concern about.

After the merger, Cingular, which is a joint venture co-owned by SBC Communications and BellSouth, would have about 47.6 million customers, or approximately 27 percent of the U.S. market, vaulting it ahead of Verizon for the top spot.

The approval reportedly comes with the condition that the combined company must sell off AT&T assets in some 16 cities, most in the south and Midwest. It is also expected to come with a cap on how much of the wireless spectrum the newly created company can control in any given market.

The FCC could not be reached for comment but did not include any mention of the merger in a daily briefing memorandum sent to members of the press. A DoJ spokesman said the department was not yet prepared to issue a statement on the merger.

Impact Disputed

Published reports suggested the FCC voted last week to approve the merger, with Democrats on the Republican-controlled commission pushing for the concessions and conditions. It is typical in such cases for the details of complex decisions to be shared with affected parties before being made public.

Some consumer groups have raised concerns about the merger, which was said to be among the largest all-cash transactions in U.S. corporate history.

Perhaps sensing the FCC and DoJ would approve the merger, the Consumer Federation of America this summer began lobbying attorneys general in several southern states to launch their own inquiries into the impacts of the merger.

"The merger is anti-competitive from every angle," said senior director of public policy Gene Kimmelman. In some areas, the merger will give SBC or BellSouth market dominance in both local phone service and wireless, in some instances, outpacing its nearest competitor by two-to-one margins on both fronts. "Competition will be weakened."

Such concerns might have been somewhat muted by the fact that AT&T Wireless had been shedding customers, suffering from one of the highest turnover rates in the industry, a problem exacerbated by some early technological problems and a trend accelerated by the advent of wireless number portability last year.

The company said it reversed that trend in its latest earnings release, but acknowledged it had to spend more to keep customers from straying, and as a result, saw profit levels fall substantially.

The merger will leave a handful of major players, with Sprint in third place nationwide.

Difficult Transition

As rigorous as the review process might have been, and as much as Cingular might be reluctant to exercise the conditions, the hardest part of the merger may yet lie ahead, analysts say.

Cingular executives have already begun to warn financial analysts that customer losses might be substantial in the months after the merger goes through, as networks are integrated and changes, most likely including layoffs -- the companies have said they can save as much as $1 billion a year by merger -- take place.

"Wireless customer bases see substantial churn in even the best of circumstances," said Gartner principal analyst Tole Hart. "They've started to get better at it by giving customers more choice and freedom only very recently."

The inevitable turmoil of a merger, especially one that will require a divestment of some customers and physical assets, will be ripe for competitors, he added. "They're going to have to move quickly to protect their customer base from the competition," Hart said.

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