Cellphone firms bid for AT&T Wireless

Analysts estimate that if Cingular acquired AT&T wireless,
the combined company could save nearly $2 billion a year. Such an
acquisition would combine AT&T Wireless’ 22 million
customers with Cingular’s 24 million to form the
nation’s largest cell phone company. Currently, Verizon
Wireless is the nation’s largest provider with 37 million
customers.

AT&T Wireless’ board members have set a deadline of
Feb. 29 to make a decision regarding the acquisition, though
yesterday’s call for a board meeting led many to expect a
decision to be made ahead of the deadline.

AT&T Wireless put itself up for sale Jan. 22, after the
company reported a fourth-quarter earnings loss and saw income
decrease more than 20 percent compared to a year ago. The company,
which carries a debt of nearly $6 billion, lost about 4 percent of
its about 22 million customers last month.

But LSA sophomore Allison Yang, who has had an AT&T Wireless
cell phone for five years, said she has no major problems with the
company. Yang said she gets coverage across almost the entire
campus and throughout the Midwest. “They have sweet deals and
good customer service,” she added.

Cingular, the country’s second-largest wireless company,
began the bidding with an initial offer of $30 billion, or $11
dollars per share, for AT&T Wireless stock. According to The
Wall Street Journal, Cingular’s bid reached $38 billion, or
$14 per share, on Sunday and was matched by Vodafone, the
world’s largest cell phone company. In the previous rounds of
bidding, Vodafone has matched Cingular’s offers.

The new bids are a premium over AT&T Wireless shares, which
closed at $11.82 on Friday at the New York Stock Exchange.

“AT&T wireless was not doing particularly well,”
Business School Prof. Jay Anand said. “They were
underperforming and not reaching their financial goals.”

Wall Street analysts point to Cingular as the likely suitor for
AT&T Wireless, partly because it is owned by SBC Communications
and BellSouth, giving it the financial backing to make aggressive
bids.

“The (purchasing) party will manage the company in a
different way,” Anand said. “They have more economies
of scale and can make the business more streamlined.”

According to Anand, in acquisitions such as this one, there are
always risks for the consumers.

“In this case, you wouldn’t expect a disruption in
wireless service,” he said. “There are two perspectives
to the deal. One is that customers benefit because the bigger
company can provide better service, better access and better deals.
The second is that the number of competitors is smaller, so the
remaining companies might fight less (over prices).”

Companies tend to emphasize that customers benefit, while the
U.S. Department of Justice tends to stress that acquisitions harm
competition. Currently in the cell phone industry, competition will
not suffer because there are still a lot of different cell phone
service providers, Anand said.

“In this case, (the acquisition) wouldn’t be very
beneficial for customers and wouldn’t be that bad because
there is significant excess in the industry,” he said.

While Cingular and Vodafone try to outbid each other, certain
barriers to a deal exist. For one, in order to buy AT&T
Wireless, Vodafone would have to free itself from a 45 percent
stake in Verizon, which is valued at up to $26 billion.

AT&T Wireless was created by the AT&T Corporation in
1994 and split into a separate company in 2001.