Wireless merger
Cingular Wireless, the #2 cellular phone company in the US, has won the bidding war for AT&T Wireless, #4 in the US. Cingular outbid UK-based Vodafone, the #1 cellular phone company in the world, after a series of higher and higher bids. The cash bid, $41 billion, is reportedly the largest ever for an acquisition.
The deal will make the Cingular the #1 US company in this sector, beating out Verizon Wireless. It will have coverage in 49 states and in 97 of the top 100 cities in the US, with a combined revenue of $32 billion.
Cingular is owned jointly by RBOCs SBC and BellSouth. Verizon Wireless is owned by RBOC Verizon and by Vodafone, which had planned to sell its minority Verizon holdings if its bid had been successful.
The bid is seen as quite costly, over $11 billion higher than Cingular's beginning bid. But as with many such cases, the position of being number one is considered to be an advantage worth a seeming excessive expenditure. According to the Wall Street Journal, Cingular expects that it will start generating a positive cash flow in 2005.
The reduction of players is certain to slow down the downward spiral of cell phone costs. Further mergers may be ahead with Sprint PCS, T-Mobile, and Nextel all vulnerable to the domination of Cingular and Verizon. The merger will certainly have an impact on the companies that make equipment for the phone companies, as they will have one fewer potential client.
According to a Wall Street Journal article ("Vodafone Affirms Ties to Verizon", 2/18/2004), Vodafone is in an awkward position. Its hope for setting up its own system in the US to add to its worldwide reach are dashed. Verizon treats it a junior partner, and uses a totally different protocol from the worldwide standard GSM, used by Vodafone, Cingular, and AT&T Wireless. But Vodafone has no other credible US acquisition candidates, and it can't easily sell off its Verizon holdings without taking a major tax loss, according to the article. The thinking is that Vodafone may turn its attention to France, where Vivendi's cell phone unit, SFR, may be up for grabs.
