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At&T Wireless Deal Approved ; Federal Agencies Impose Conditions on Cingular's $41 Billion Purchase

Posted on: Monday, 1 November 2004, 15:00 CST

Hello, Cingular. Goodbye, AT&T Wireless.

Federal regulators yesterday said they were removing the last barriers to a $41 billion cash purchase of Redmond's AT&T Wireless Services Inc. by Cingular Wireless.

The Justice Department gave its go-ahead, with some compromises required. The Federal Communications Commission will approve the deal today, with even more stringent conditions, the Seattle Post- Intelligencer has learned.

The approvals will allow creation of the nation's largest cellular carrier, called Cingular Wireless LLC, with 47.6 million customers.

But they portend widespread layoffs among the 5,700 employees in Washington state, the fading of the once-proud AT&T Wireless brand and the disappearance from Seattle of yet another corporate giant.

Soon after the deal closes, which one Cingular official said likely will occur within days, the world of AT&T Wireless' customers and employees will begin to change.

On a still-unknown date that Cingular has code-named "Day One," the AT&T Wireless brand will start disappearing from billboards, retail outlets and even the opening screens of customers' handsets. Within six months after the close, the name will largely vanish from sight, though AT&T Corp. may resurrect it.

All current AT&T Wireless customers will become customers of Cingular. New rate plans will be launched, but customers won't need to buy them or new handsets to get uninterrupted service, said Cingular spokeswoman Lauren Garner.

A new management team, which AT&T Wireless has said will exclude AT&T Wireless chief executive John Zeglis and president Michael Keith, will be put into place. The newly enlarged Cingular will be headed by its current chief executive, Stan Sigman.

Significant layoffs are anticipated among the combined companies' 69,000 employees, but none have been announced yet, and Cingular has pledged they won't take place until 2005. AT&T Wireless has 31,000 employees, 5,700 of them in Washington state.

The deal will pay AT&T Wireless' 2.8 million shareholders $15 cash per share. That's good news if they bought after late 2001, when the price dropped below $15 and remained there.

That lucky group doesn't include many AT&T Wireless employees, who along with other AT&T Corp. workers, bought some 36 million shares when AT&T Wireless made its initial public stock offering, on April 27, 2000. That day, shares closed at $32.

Many employees came into AT&T Wireless through its 1994 purchase of McCaw Cellular Communications, a local company founded by telecommunications legend Craig McCaw.

Yesterday's approval from the Justice Department came in the form of a 24-page document, roughly eight months after Atlanta-based Cingular and AT&T Wireless agreed to the purchase. The department said AT&T Wireless must:

Completely exit the cellular business in Oklahoma City, Okla., and in a rural area of that state and must ensure that customers there aren't left without service.

Sell off cellular spectrum - the exclusive right to offer wireless services in a certain area at a given frequency - in 10 other states. The company is basically required to go out of business in some rural areas of Connecticut, Kentucky and Texas, though it may retain some spectrum there for Cingular's use.

Sell some spectrum in Dallas-Fort Worth, Detroit and Knoxville, Tenn.

Sell minority interests in cellular providers serving some areas of Georgia, Kansas, Louisiana, Massachusetts and Missouri.

For its part, the FCC said it will require similar actions by AT&T Wireless but in more and different locations. The FCC is scheduled to announce those requirements today.

A source close to the proceedings said the FCC will order that:

In 16 markets within Arkansas, Connecticut, Kentucky, Mississippi, Missouri, Oklahoma and Texas, AT&T Wireless must sell its business to a third party, while remaining in operation until the business is sold.

In two different markets, Detroit and Dallas, AT&T Wireless must sell 10 megahertz of spectrum.

In a different four markets, the company must convert any interests it holds in a competitor to Cingular into an interest giving it no governance rights.

In 43 counties in Georgia, Tennessee and Texas, the merged company must sell any mobile spectrum over 80 MHz, an amount that gives it considerable capabilities to offer voice and data service.

The merged company must refrain from bidding in a January spectrum auction for licenses in any market where it holds a "significant interest" in any entity already owning 70 MHz of mobile spectrum.

A joint venture between Cingular and Bellevue's T-Mobile USA Inc. must be dissolved, and the venture must give 30 MHz of spectrum to T- Mobile.

AT&T Wireless must give up its equity position and board seat with Triton PCS of Berwyn, Pa.

The merged company must hire a trustee charged with executing these requirements if the company doesn't do so.

Washington residents aren't affected by any of the changes.

Roughly 260,000 customers live in the 13 markets affected by the Justice Department requirements, most of them in Oklahoma, Cingular spokesman Clay Owen said. He said affected customers may be required to buy new handsets and to sign new service agreements with whoever buys AT&T Wireless' business.

Owen wasn't available to comment on how the FCC changes might affect current customers.

The Justice Department said the agreement, also known as a consent decree, ensures that wireless customers will continue to benefit from competition - a natural concern when two major competitors join forces.

"The combined companies would have left consumers in those 13 markets with substantially fewer choices in wireless service, meaning increased price or decreased quality," said a Justice Department official involved in the negotiations, who declined to be named.

But the consent decree didn't go far enough for some.

Consumers Union, a not-for-profit consumer advocacy group, said the decree leaves at a competitive disadvantage at least 18 other markets in the United States, most of them urban. The group also said the agreement fails to address a key issue: the power that the newly enlarged Cingular will hold in markets where it dominates both wireless and conventional, or wireline, telephone service. Such markets include California, Midwest and the South, said Consumers Union spokeswoman Susanna Montezemolo.

Cingular is a partnership owned by SBC Communications Inc. and BellSouth Corp., two former "Baby Bells," which traditionally have specialized in wireline service.

"Ignoring that issue sets a bad precedent," Montezemolo said. "Verizon has a wireline business as well as wireless, so there could be further consolidation."

Consumers and groups like Consumers Union have until Christmas to comment on the agreement. Then U.S. District Judge Reggie Walton, in Washington, D.C., will determine whether the deal is "in the public interest." He could require more divestitures if he determines it is not.

Written comments can be submitted to: Nancy Goodman, Department of Justice, 1401 H St. N.W., Suite 8000, Washington, D.C. 20530; called in to 202-514-5621; or e-mailed to antitrust.atr@usdoj.gov.

P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.com

Source: Seattle Post - Intelligencer

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