Cingular sets $41b deal for AT&T Wireless

Cingular Wireless won the bidding war for AT&T Wireless yesterday with a bold $41 billion cash offer, a deal that would make it the nation's largest cellphone company, eliminate a major competitor, and hold out the promise of a bigger calling footprint, better coverage, and a broader array of services for the combined company's 46 million customers.

The deal, which is subject to regulatory and shareholder approvals and is not likely to be completed until later this year, would give Atlanta-based Cingular nearly 30 percent of the US wireless market. That would vault it into first place ahead of Verizon Wireless, which has 37.5 million customers. Cingular would also become the biggest mobile phone company in Massachusetts.

Once billions of dollars' worth of overlapping cellphone towers, offices, and employees are eliminated, Cingular officials said, they will be left with a larger network with fewer dead zones and dropped calls, and the capacity to carry more cellphone traffic.

The deal fills several gaps in Cingular's national coverage, giving the company access to the wireless calling spectrum in such markets as New York City, Denver, Phoenix, and Pittsburgh. Locally, Cingular has limited coverage in Northern New England, where AT&T Wireless is strong.

A Cingular spokeswoman said AT&T customers won't need new phones when the two companies are combined, although software upgrades may be necessary. The spokeswoman, Alexa Kaufman, said the merger will also combine the two firms' wireless calling spectrums, enabling Cingular to give customers access to increased data speeds and more services like picture imaging, e-mail, streaming video, and interactive gaming.

"This is a huge win for customers who will benefit from improved service quality and advanced services," said Stan Sigmon, president and chief executive of Cingular Wireless, who will run the combined $32.7 billion company.

Industry analysts and consumer advocates said the marriage of the number two and three wireless providers was unlikely to mean higher costs for cellphone users because the new company would still have to compete against four other major players: Verizon Wireless, Nextel Communications, Sprint PCS, and T-Mobile. Analysts, however, said another merger was likely.

AT&T Wireless auctioned itself off in what turned out to be a high-stakes bidding war between Cingular and Britain's Vodafone Group PLC. Cingular's initial bid was $30 billion, or $11 a share, but that was quickly ratcheted up on Friday and over the weekend as Cingular and Vodafone kept volleying billion-dollar haymakers at each other.

Vodafone seemed to be in the driver's seat Monday evening but Cingular ultimately prevailed early yesterday morning by increasing its cash bid to $41 billion, or $15 per share, plus assumption of $6 billion in AT&T Wireless debt.

While AT&T Wireless had a tough fourth quarter and failed to add and hang on to as many customers as analysts had been expecting, a company spokesman said the auction process was initiated now because the value of the company could be maximized.

As recently as mid-December, AT&T Wireless shares were trading at $7 a share. AT&T Wireless shares were the most actively traded yesterday on the New York Stock Exchange, closing at $13.78, up $1.96, or nearly 17 percent.

Shares of the two Baby Bells that own Cingular, SBC Communications and Bell South, both fell yesterday. SBC lost 18 cents to close at $24.87 and Bell South dropped 49 cents to $29.06. SBC owns 60 percent of Cingular and will pick up $25 billion of the AT&T Wireless price tag. Bell South will pick up the remaining $16 billion.

The $41 billion total cost would translate into a price of nearly $1,900 per customer, assuming AT&T's market share doesn't slip and it retains the nearly 22 million customers it has today.

"To me, that's a little expensive," said Christopher J. Foster, a wireless analyst with Technology Business Research in Hampton, N.H. "They're paying a lot of money and it'll be key for AT&T Wireless to hang on to their customers before this deal closes."

Roger Entner, a wireless analyst at the Yankee Group, a technology research group in Boston, said the price may have been high but it would have been much higher for Cingular had Vodafone won the bidding contest.

Not only would Cingular have lost a chance to expand fast, Entner said, but Vodafone's entrance to the US market would have only intensified cutthroat competition that has driven down the cost of a wireless call by more than a third since 2001.

"Cingular had to do it. They had much more to lose than Vodafone," Entner said.

Vodafone has 130 million wireless customers worldwide and owns 45 percent of Verizon Wireless, a stake it would have had to shed had its bid for AT&T Wireless been successful. The company was looking to make a foray into the US market, which by European standards is still underserved.

Analysts said they did not expect Cingular's purchase to lead to a rash of mergers in the wireless business, but some speculated that Sprint was a likely takeover target.

Mark Lowenstein, managing director of Mobile Ecosystem, a Wellesley wireless consulting firm, said another merger in the next two years was a 50 percent possibility.

Verizon Wireless, while losing its status as the number one carrier, seemed to breathe a sigh of relief at the prospect of industry consolidation.

In a statement, the company said: "Today's announcement is one step in the process of consolidation that Verizon has consistently said is needed in the United States. Wireless spectrum today is in too many hands, and a smaller number of strong and well-capitalized industry participants would mean greater investment in network infrastructure and services."

Samuel A. Simon, the chairman of the Telecommunications Research and Action Center, a consumer watchdog group in Washington, D.C., said this merger might be a win-win for the companies and their customers. He said the combined company would be a more serious competitor for Verizon and be more likely to roll out new services.

"The real concern isn't this merger -- but rather the next one[s] that are likely to follow," Simon said.

Bruce Mohl can be reached at mohl@globe.com.