Cingular's Converged Future

The $67 billion merger between AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS) will drive convergence between the companies' wireline businesses and Cingular Wireless , the largest cellular operator in the U.S., the firms said on a conference call this morning.

The merger will further consolidate the wireless market in the U.S., following megabucks mergers over the last couple of years. AT&T and BellSouth now respectively own 60 and 40 percent of Cingular, and under the new deal it would be a single entity.

After the merger, BellSouth CEO Duane Ackerman will be chairman and CEO of BellSouth operations for an interim period following the merger. Overall, AT&T and BellSouth say they'll see some $18 billion in cost savings from combining the two companies, which includes cutting around 10,000 jobs between 2007 and 2009.

Users, naturally, are worried that the second coming of Ma Bell will end up increasing their costs. "It did make me nervous when I heard the news,” admits Roger Cass, CTO of Cincinnati-based healthcare firm MediSync. "It's not going to help to cut my phone bill, either as a business or a consumer.

"One company is once again going to own that final mile... Unless the government can come up with a way to own the infrastructure, like they do the highways, I don’t see any way around this."

The firms, however, are selling the merger as a way to bring together their wired and wireless assets so that customers can be offered services that move among the office, the home, and points in between. "There's an opportunity in the future for the convergence of the wired and wireless networks," says Randall Stephenson, chief operating officer of AT&T, "including converged products for both business and consumer subscribers."

Stephenson describes third-generation UMTS networks and IP Multimedia Subsystem (IMS) technology, which allows delivery of content across different wired and wireless networks, as the "building blocks" of convergence, and says AT&T and BellSouth are aggressively rolling out both technologies.

He reaffirmed that Cingular will roll out UMTS in "most of the major markets" in the U.S. by the end of 2006, while the combined firm's wired and wireless networks will move to a common IP backbone before the end of the decade.

"Capital is being spent to make this happen," says Stephenson.

Cingular has been looking into fixed/mobile convergence for some time now, running trials with both AT&T/SBC and BellSouth. (See Cingular's Got Big FMC Plans.)

Under the financial terms of the deal, shareholders of BellSouth will get 1.325 shares of AT&T stock for each share of their BellSouth stock. Based on AT&T's closing stock price on March 3, this exchange ratio equals $37.09 a share -- a premium of nearly 18 percent over BellSouth's closing price on March 3.

The deal is expected to close in 12 months, pending regulatory approval.

— Dan Jones, Site Editor, Unstrung

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