AT&T Wireless is gone
After two decades as the mainstay of the wireless industry here, with roots stretching back to McCaw Cellular Communications, the Redmond cellphone giant became part of Cingular Wireless.
At 5 a.m. Pacific time, the Federal Communications Commission said it had approved the merger of the two companies, giving the final go ahead for Cingular to hand over $41 billion in cash to purchase AT&T Wireless.
By 8 a.m., Cingular Chief Operating Officer Ralph de la Vega received a note during an interview, letting him know the merger was completed. "The deal is done," he said. "We feel good. We aim to execute just as quickly."
So eight months after winning a high-stakes bidding war and waiting for government approval, Cingular completed its acquisition of AT&T Wireless.
And, with that, comes the hard work: merging the two companies into one bearing the Cingular brand name. Much remains unclear about how this union — now the nation's largest wireless carrier — will fare. Some signs started to become clearer yesterday.
Cheering the FCC approval, which came a day after the Department of Justice signed off on the deal, Cingular executives yesterday began explaining when, how and where they'll absorb their onetime competitor.
Impact on jobs
But they did not answer the Puget Sound region's biggest question: How many jobs will be cut at the Redmond headquarters of AT&T Wireless? With 5,700 employees in Washington state alone, the company is one of the area's largest tech employers.
Cingular Chief Executive Stan Sigman acknowledged that downsizing will happen after Cingular — which as of yesterday now has 68,000 employees — identifies "synergies" between the two companies.
"There will be no downsizing of the force until after the first of the year," he said during a conference call with reporters. "What that number would actually be, we haven't determined yet."
Some details could come in about two weeks when Cingular, a joint venture between telecommunications giants SBC Communications and BellSouth, gives investors an updated estimate of merger costs.
Sigman emphasized that the merged company will be run from Cingular's headquarters in Atlanta. But the company is setting up three regional centers, with Redmond being the Western anchor. "In regards to Redmond, we have said the headquarters would be in Atlanta but that does not mean all headquarters people need to be in Atlanta," Sigman said. "I believe there's a lot of talented people in Redmond."
ashington state officials had not been notified of any significant job cuts and could not yet say how the merger will affect the regional economy. "I don't know if there is any serious job impact," said Chang Mook Sohn, the state's chief economist.
Impact on operations
Together, the two companies' 46 million subscribers surpasses market-leading Verizon Wireless.
With so much work ahead to integrate the companies, however, many analysts question the likelihood of a smooth transition.
"They have at least 100 major issues on the board that have to be addressed," said Richard Nespola, chief executive of The Management Network Group, a telecommunications consultancy in Overland Park, Kan. "It's not for the faint of heart. The parent companies will be challenged, and it's not done in a vacuum; it will be done while under enormous competitive pressures."
Todd Rosenbluth, a telecom-services equity analyst at Standard & Poor's, said although Cingular will have more customers, Verizon Wireless still has wider profit margins, stronger customer loyalty and a perception of better network quality.
"Cingular's No. 1 ranking in customers may be short-lived, depending on how they execute," he said.
In Cingular's defense, de la Vega said the company isn't underestimating the difficulty, but "we've done it before. We were formed by a combination of companies. It's in our DNA, and we we'll do it again."
Cingular executives yesterday did begin to fill in some of the operational details of the combined companies.
For instance, Sigman said they will continue to support AT&T Wireless customers' current rate plans, phones and features without interruption. Customers will also have immediate access to the combined networks, with coverage extending to the top 100 markets nationwide.
Existing AT&T Wireless customers will be billed by that company for a year to 18 months — until that billing system is terminated. New customers added by both AT&T Wireless and Cingular will be billed by Cingular.
"The customers are going to grow on Cingular's billing and back office (systems)," de la Vega said. "That means we'll no longer be building that infrastructure in two companies."
For the time being, the company will route AT&T Wireless customer queries so that they receive "traditional" AT&T Wireless customer service. New customers will be handled by a common service representative handling both Cingular and AT&T Wireless customers.
By Thanksgiving, the customer- service functions are expected to be merged, Sigman said.
Meanwhile, the company plans to advertise the Cingular brand heavily. "We'll start educating the marketplace that the two companies have come together, and it will be one name," Sigman said.
Cingular executives also clarified the timeframe of technology rollouts. They expect to have a nationwide rollout of its high-speed third-generation — or 3G — network in the fourth quarter of 2005. Currently, AT&T Wireless has launched the system in six markets and Cingular is testing it in one.
Impact on leadership
The top tier of the company will remain in the hands of Cingular executives. AT&T Wireless CEO John Zeglis and Michael Keith, president of mobility operations, will step down after a few weeks of transition.
Other high-level executives are expected to serve until the end of the year, or longer if necessary, Cingular said.
The company's Western region, based in Redmond, will be run by Brian Shay, former executive vice president of AT&T Wireless' regional sales. Steve Hodges, another AT&T Wireless executive, will head the Northeast regional center.
In all, 12 vice presidents in the reconfigured company will come from AT&T Wireless.
Impact on finances
The deal's $41 billion price tag will be offset somewhat by AT&T Wireless' cash hoard. Following the sale this month of its stake in Rogers Wireless of Canada, the company had about $5.8 billion in cash and short-term investments.
Along with the wireless network, Cingular will take on AT&T Wireless' $18.3 billion in liabilities, including $10 billion in long-term debt. Cingular itself already is carrying $12.7 billion in long-term debt and $3.5 billion in other liabilities.
An SBC spokesman told Bloomberg News the company is using $8 billion to $10 billion in borrowed funds to complete the transaction; a BellSouth spokesman said his company was borrowing $6 billion.
Yesterday, Moody's Investors Service cut its rating on Cingular two notches to Baa2, the second-lowest investment-grade level, reflecting its assumption of AT&T Wireless debt as well as concerns that integrating the two companies could take longer and be more difficult than expected.
Moody's also cut its ratings for SBC and BellSouth a notch, to A2, and said its ratings outlook was negative.
Impact on consumers
One concern of the deal was how it would affect the consumer. The Justice Department and FCC both required Cingular to shed assets and broadcast spectrum in markets across the nation to address potential issues related to competition and market dominance.
Mark Cooper, director of research at the Consumer Federation of America in Washington, D.C., said the deal will hurt competition and be bad for the customer. He counted 18 cities, including Dallas, Orlando, Fla., and Sacramento, Calif., where Cingular will be the dominate provider and will also provide landline business through parent SBC and BellSouth. The result, he suggested, would be higher prices resulting from less competition.
While the FCC approved the merger, the commission's two Democratic members, Jonathan Adelstein and Michael Copps, dissented in part. "In many major in-region markets, Cingular now will have almost half of the mobile wireless market share," Adelstein wrote. "And in allowing the acquisition of AT&T Wireless, we permanently remove an independent source of competition to Cingular, SBC and BellSouth."
But Jeff Kagan, an independent telecom analyst in Marietta, Ga., said he didn't expect prices to go up. Even though fewer individual cellular networks now exist, he said, there are more providers entering the market by repackaging services on those same networks.
"We are going to go through a transformation in the next few years with fewer larger networks, but more competitors," he said.
Impact on local competitors
Locally, the sale of AT&T Wireless exceeds that of Bellevue-based VoiceStream Wireless, which was bought by Germany's Deutsche Telekom for $29 billion in 2001. Before that, Boeing's acquisition of McDonnell Douglas for $16.3 billion in 1997 topped the list.
With VoiceStream, now known as T-Mobile USA, and AT&T Wireless purchased by out-of-town companies, the question arises: Is the Northwest still a hotbed of wireless innovation.
T-Mobile remains a significant presence in Bellevue, and company officials said yesterday that it is growing. With the consolidation of the six national carriers into five, T-Mobile becomes the fourth largest in the United States, with about 13 million subscribers and 24,000 employees, including 2,700 in the Puget Sound area.
It is trying to hire for 1,000 positions, a fourth of them in this area. "We are hiring in Seattle and we are interested in hearing from talented folks that want to be part of a carrier that is doing really well," said spokesman Bryan Zidar.
Zidar said that includes AT&T Wireless employees, although he said T-Mobile has not been targeting them officially.
There are also dozens of entrepreneurial wireless companies in the market, as well as two major regional carriers: Kirkland-based Nextel Partners and Bellevue-based Western Wireless.
Impact on real estate
The merger has sparked a guessing game about the fate of AT&T Wireless' tony headquarters at Redmond Town Center, where the company leases 582,000 square feet of office space in six buildings.
If all of that hit the market at the same time, Redmond's office-vacancy rate would soar to 30 percent, a sharp blow to an Eastside market that had weathered the real-estate downturn relatively well.
That's not likely to happen. Several major companies have already expressed interest in the property if Cingular moves out, said Brett Jordan, the Raskin & Associates broker handling Town Center's office space.
Chief among them is Microsoft, which has toured the building twice, Jordan said.
"They have a fairly high level of interest," Jordan said. "Whether they will pull the trigger, I don't know."
Cingular could decide to keep at least some of the Town Center space for its Western regional headquarters. "It is way to early to know," said AT&T Wireless spokesman Jeremy Pemble.
The uncertainty doesn't worry The Macerich Co., the Santa Barbara, Calif., real-estate trust that owns Town Center. AT&T Wireless has nine years left on the lease, which Cingular will have to honor.
Seattle Times business reporters Drew DeSilver and J. Martin McOmber contributed to this report.
| Top executives | Gain from stock and options* | Potential severance |
||
| John Zeglis, chairman and CEO | $20,167,665 | $7,447,694 | ||
| Andre Dahan, president/mobile multimedia services | $11,546,400 | $4,005,024 | ||
| Michael Keith, president/mobility operations | $9,297,120 | $1,884,886 | ||
| Joseph McCabe Jr., EVP and chief financial officer | $5,368,270 | $2,497,288 | ||
| Gregory Slemons, EVP/wireless network services | $5,357,055 | ** | ||
| Lewis Chakrin, EVP/corporate strategy and business development | $5,352,465 | $2,349,751 | ||
| Jordan Roderick, president/international | $4,750,935 | ** | ||
| Gregory Landis, EVP and general counsel | $4,605,495 | ** | ||
| Adele Ambrose, EVP/public relations and investor communications | $4,529,565 | ** | ||
| Roderick Nelson, EVP and chief technical officer | $4,213,290 | ** | ||
| Jane Marvin, EVP/human resources | $4,079,985 | ** | ||
| G. Michael Sievert, EVP and chief marketing officer | $3,788,385 | ** | ||
| Brian Shay, EVP/sales | $3,155,173 | ** | ||
| Outside directors | ||||
| Donald Fites | $848,001 | n/a | ||
| Ralph Larsen | $844,311 | n/a | ||
| Walter Elisha | $818,824 | n/a | ||
| John Madigan | $778,101 | n/a | ||
| Carolyn Ticknor | $686,031 | n/a | ||
| A. Barry Rand | $544,851 | n/a | ||
| Koichi Nishimura | $376,300 | n/a | ||
| Nobuharu Ono | *** | |||
* Figures in the stock-and-options column do not include performance share awards that had not yet converted to stock.
** Not disclosed separately
*** Ono represented NTT DoCoMo on the board, and received no AT&T Wireless stock or options as compensation.
Source: Company filings with Securities and Exchange Commission