Wireless customers could dial up better service if companies merge

But loss of competition might bring higher costs

January 22, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Timmy Lloyd pays AT&T Wireless about $53 for 500 minutes of calls a month. But even at that bargain rate, the 34-year-old Inner Harbor maintenance worker says it's not worth it.

Lloyd can barely hear the people he calls. He has forked over $25 on three separate occasions to replace a faulty chip in his handset. And he spends most of his minutes calling the customer-service line to find help for his other troubles.

"I'm giving up on them," said Lloyd, who uses his cell phone to call home to Norfolk every day. "They should get back to people more quickly about their problems. My contract is almost up, so I'm switching."

News that AT&T Wireless is shopping around for a buyer won't persuade someone like Lloyd to change his mind. But telecommunications experts say that as AT&T and the nation's five other largest carriers move toward consolidation, consumers will benefit in the long run as the companies left standing will likely be bigger, stronger and more capable of spending money on network upgrades and service improvements.

Merging forces could mean fewer dropped calls, clearer reception, larger coverage areas and better service, analysts say. But they also warned that with fewer competitors in the field, consumers will no longer have as wide a choice of calling plans and pricing deals.

"We've been saying for the last couple years that it's high time for consolidation," said Ken Hyers, a wireless analyst for In-Stat/MDR, a market research firm in Arizona. "From an industry standpoint, it's really necessary because the carriers can't support the cost of building out these networks and profit at the same time. This is such a cut-throat, competitive market, carriers are struggling to make money, and consumers are winning.

"But with consolidation, it's probably not going to be so hot for consumers," Hyers said. "Once you get down to four carriers, you've got a situation where the competition won't be as fierce. Cheaper service is great for customers, but wouldn't it be nice to have your cell phone work in more places?"

Redmond, Wash.-based AT&T Wireless declined yesterday to comment on reports that it is entertaining offers from Cingular Wireless in Atlanta, NTT DoCoMo Inc. in Japan and Nextel Communications in Reston, Va. Rumors of a possible merger deal have helped drive AT&T Wireless stock up 36 percent since the beginning of the year to close yesterday at $10.99.

Flagging fortunes

But speculation that it has been seeking a buyer has persisted for months as the carrier's fortunes flagged since its launch as a tracking stock in 2000. Spun off as an independent company from parent AT&T Corp. the next year, AT&T Wireless has never posted a profit and had $19.2 billion in total debt as of Sept. 30.

Industry analysts said the company, with 21.9 million customers, has also experienced difficulties recently in switching over to a new network. A federal rule that took effect in November allowing consumers to switch carriers and keep their cell phone numbers also likely hit AT&T Wireless hard in terms of customer defections, said analysts.

But regardless of which suitor AT&T selects, experts said, the merged company would be better suited to compete against the nation's biggest carrier, Verizon Wireless, which has 36 million customers and the largest network coverage. Verizon also announced recently that it is in the process of rolling out its high-speed wireless data network across the country.

"Verizon certainly has the best performance out of the large wireless carriers," said F. Drake Johnstone, an analyst with Davenport & Co. in Richmond.

"Competitors of Verizon realize they have to step up spending to keep up, and that they may have to do it sooner," Johnstone said. "Consolidation would be a positive for the industry. It would mean more cash flow, stabilize pricing and generate long-term higher earnings. The remaining players would invest more in the network so you have better network quality and a larger footprint across the country for each carrier."

Bigger players would also have the resources to introduce new technology faster, such as advanced versions of picture messaging, e-mail, Web browsing and video streaming applications.

"I love AT&T, but if they merge, it would probably be better since they could offer better customer service and better phones," said Bryan Morton, a 23-year-old Baltimore temp worker, who recently bought AT&T Wireless' Nokia 3100.

There are 154 million wireless customers in America, according to the Cellular Telecommunications and Internet Association. Keeping those customers happy is an enormous issue that carriers deal with, because an average of 37 percent switch carriers each year.

That tenuous sort of relationship makes it increasingly important for carriers to distinguish themselves on the quality of service offered, industry experts said.

`Can you hear me now?'

Pete Priola is no expert on telecommunications, but the owner of Mangia Italian Grill at the Inner Harbor knows something about service. Amid dropped calls, no coverage signals, echoes and other reception problems, he has been a Cingular customer, a Nextel customer and now a Verizon customer.

"I travel a lot," said Priola, 45, who spends about $340 a month on his cellular bill. "I was up in Bangor, Maine, recently, and I couldn't get any reception. I drive by the airport, and forget about it - I have no coverage. I live by the water, I get no signal. You know why the guy in that commercial is always walking from place to place saying, `Can you hear me now?' It's because he's got to keep moving every second to have service.

"All the companies I've been with have had problems," Priola said. "Maybe if these companies merge, it would be less cut-throat, and they would have more time and money to give us better calling areas and better service. That would be a good deal worth paying for."

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