Published: March 10, 2004 in Knowledge@Wharton Last week Cingular, the second-largest wireless telephone firm in the U.S., beat Britain's Vodafone in a battle for AT&T Wireless with a $41 billion bid. If regulators approve, the merger will create the country's largest wireless telephone company. But will Cingular be able to build real value from the deal? Professors at Wharton and other experts give the proposed merger a thumbs-up in terms of strategy. But they also warn that it is too early to tell whether Cingular’s $41 billion, $15 per share cash offer will prove to be a good investment - in part because the whole wireless telephony industry is in flux.

 

Gerald Faulhaber, a professor of public policy and former chief economist for the Federal Communications Commission, says that industry insiders have been predicting wireless industry consolidation for some time. “The reason these companies are having trouble making money is because the competition is pretty tough,” he says.

 

Faulhaber notes that the merger accomplishes several things for Cingular. For starters, it reduces the number of players in the wireless industry from six to five. It takes out AT&T Wireless, which had been an aggressive price-cutting competitor in the past. And it vaults Cingular from third place to numero uno status as the largest cellular provider.

 

“This deal completes Cingular,” says Jeff Kagan, an independent telecom analyst in Atlanta . If the merger goes through, the company will grow by about 22 million subscribers to 46 million customers, besting Verizon Wireless, which currently has 37 million subscribers.  In addition, the merger addresses issues that each company has faced: not enough spectrum, not enough capacity, dead spots, and busy circuits. “After the merger, the new company will have twice the spectrum, twice the capacity, twice the cell towers, and that should alleviate the problems,” he says.
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