Cingular faces major challenges

NEW YORK – Now that the purchase of AT&T Wireless is complete, Cingular Wireless’ new status as the nation’s biggest cell phone provider may prove fleeting if the merged company doesn’t move quickly.

The $41 billion deal, finalized Tuesday with Federal Communications Commission clearance, pairs two companies whose customer service rankings and operating performance are among the weakest in the industry.

As Cingular’s management takes on the sizable distraction of merging two large corporations, it may prove especially difficult to attack those issues with any speed.

One top concern has been the pace at which subscribers have been switching to rivals, especially at AT&T Wireless Services Inc., though Cingular’s performance in this area has been unimpressive as well.

Those defections have been fueled in large part by a successful marketing campaign at Verizon Wireless, which has built a strong perception as the company with the country’s most expansive cell phone network.

The new Cingular hopes the added network coverage and capacity from AT&T Wireless will help counter that perception almost from the start.

“This is about putting two companies together that are not the best in those metrics to drive toward the best. … I do not think that’ll happen day one, but this is what it’s all about,” Cingular chief executive Stan Sigman said in an interview. He noted that the new Cingular will offer coverage in the 100 biggest markets and 49 of 50 states.

“I don’t believe Verizon can claim that,” Sigman said. “Verizon is a very admirable competitor, and I anticipate they will continue to be that, but I believe this gives us the assets and resources to give consumer other choices of a quality network.”

Cingular officials also said they expect to offer a unified brand and service for all subscribers by the open of the critical holiday selling season in late November.

While there’s little doubt the merger gives Cingular tools to improve customer satisfaction, the company needs to move swiftly. With more than 170 million people now using a cell phone in the United States, the explosive growth of recent years is bound to begin slowing.

In the meantime, AT&T Wireless has been losing more than 3.5 percent of its customer base every month during 2004. Cingular’s “churn” has been better at more than 2.5 percent a month, but that’s still considerably more than Verizon and Nextel Communications Inc. at about 1.5 percent.

Combined, total subscribers at Cingular and AT&T Wireless Services Inc. grew by 825,000 in the third quarter for a total of 47.6 million. But the divestitures ordered by the Federal Communications Commission and Justice Department will subtract about 350,000 customers, leaving Cingular with about 47.25 million.

While archrival Verizon Wireless won’t report its latest results until Thursday, that company has been adding as many as 1.5 million subscribers a quarter, a pace that would give it nearly 42 million customers at the end of September.

Unless Cingular closes the gap dramatically in signing up new customers and keeping the old ones, the company’s lead of about 5 million customers could evaporate quickly.

If Verizon Wireless continues to add just 500,000 more customers a quarter than the new Cingular – less than the current rate – the lead will disappear in less than three years.

The new Cingular, a joint venture between BellSouth Corp. and SBC Communications Inc., will have 68,000 employees, although an undetermined number of layoffs are planned starting in 2005.

Under the FCC’s order, Cingular and AT&T Wireless will not be allowed to merge in 16 markets and must divest themselves of assets in six additional markets. The 22 markets are in 15 states: Oklahoma, Texas, Kentucky, Arkansas, Connecticut, Mississippi, Missouri, Michigan, Louisiana, Massachusetts, Tennessee, Georgia, California, Nevada and North Carolina.

That’s five markets more than the Justice Department required in its order on Monday. But even with the additional divestitures, the two Democrats on the five-member FCC dissented in part to the merger, saying they’re concerned it will harm competition.

“In many major in-region markets, Cingular now will have almost half of the mobile wireless market share. And in allowing the acquisition of AT&T Wireless, we permanently remove an independent source of competition to Cingular, SBC and BellSouth,” Commissioner Jonathan Adelstein said.

In Tuesday’s trading on the New York Stock Exchange, shares of San Antonio-based SBC slipped 24 cents to $24.75, while Atlanta-based BellSouth fell 39 cents to $26.03.

AT&T Wireless rose 6 cents to $14.98, or two cents shy of the $15 price Cingular will be paying in cash for all the shares.