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AT&Amp;T Wireless Suffers a Loss of Subscribers ; Cingular Wireless Picks Up New Users

Posted on: Wednesday, 21 April 2004, 06:00 CDT

and Scott Lanman

AT&T Wireless Services Inc. had its first-ever loss of subscribers last quarter because of computer glitches, while its future parent, Cingular Wireless LLC, added 554,000 customers after improving network quality.

AT&T Wireless, which agreed to sell itself for $41 billion in February, lost a net 367,000 users in the first quarter, according to a company statement. That's more than the 201,000 accounts Bear Stearns & Co. analyst Phil Cusick had expected the Redmond, Wash.-based company to lose.

Cingular's parents, SBC Communications Inc. and BellSouth Corp., are seeking speedy approval of the AT&T Wireless purchase so they can try to reverse customer defections and revive sales. Chief Executive Officer Stan Sigman cut turnover at Atlanta-based Cingular with network upgrades that allow customers to use phones for taking photos, playing games and checking e-mail.

"They said they were buying beachfront property, but the sand is eroding as we speak," said Ed Paik, of Boston-based Columbia Management Group, which oversees more than $180 billion, including shares of San Antonio-based SBC and Atlanta-based BellSouth. "Cingular wants to close the deal as quickly as possible."

Cingular ended the quarter with 24.6 million subscribers, AT&T Wireless with 21.7 million. The combination will create the biggest U.S. mobile-phone company, with more customers than Verizon Wireless, which is owned by Verizon Communications Inc. and Vodafone Group Plc.

First-quarter services revenue at AT&T Wireless was $3.75 billion, little changed from $3.74 billion a year earlier. Rivals including Verizon Wireless won AT&T Wireless business after the government instituted a rule that lets customers keep their mobile- phone numbers when changing providers.

Some subscribers disconnected because of computer problems that made it difficult for AT&T Wireless to switch on certain services. The company's losses were concentrated in January and slowed in the following two months, spokesman Peter Rowe said.

Sprint Corp.'s mobile-phone unit, which ranks fourth by subscribers, gained 414,000 customers in the first quarter while driving churn, which measures the percentage of customers that disconnect service each month, to 2.9 percent from 3.1 percent a year earlier.

AT&T Wireless Chief Executive John Zeglis, who will depart when the sale closes, has been installing equipment and negotiating agreements with Cingular and other competitors aimed at improving the speed at which his company's network sends calls and information.

The U.S. Federal Communications Commission and Justice Department are reviewing the planned transaction to ensure it will help consumers and won't lessen competition.

At Cingular, sales rose 8.4 percent to $3.9 billion.

Average revenue per user fell 5.5 percent from a year earlier to $47.95, reflecting gains in the number of subscribers, Cingular said.

Cingular tried to bolster profitability by eliminating some extra free minutes, RBC Capital Markets analyst Jonathan Atkin said in an interview.

The company also raised prices for minutes in excess of allotted limits and doubled prices for additional lines for family members, he said.

"We're seeing some discipline on the part of the management teams," including Cingular's, said Atkin, who has an "underperform" rating on AT&T Wireless shares. Cingular equity doesn't trade publicly.

First-quarter churn fell to 2.7 percent, Cingular said. Revenue from data services climbed 53 percent, mainly because subscribers sent more written messages with their phones.

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