AT&T Wireless appears to lean toward accepting Vodafone bid

British firm's cash offer of $38 billion likely means fewer people being let go

February 17, 2004|By NEW YORK TIMES NEWS SERVICE

AT&T Wireless, the nation's third-largest wireless telephone operator, appears to be leaning toward a buyout offer from Vodafone Group PLC of Britain, executives close to the talks said last night.

While the board had not yet approved a deal, the executives said AT&T Wireless was working to strike a deal with Vodafone within the next 24 hours. At the last minute, Vodafone indicated that it would be willing to raise its $38 billion cash bid, while Cingular Wireless LLC, the favorite to win the auction, refused to increase its offer.

A Vodafone purchase would have less regulatory risk, while much of the AT&T Wireless management and work force would remain intact, the executives said.

A main sticking point with Atlanta-based Cingular, they said, is an insistence by AT&T Wireless that Cingular commit itself to taking whatever steps are needed to win regulatory approval, including divestitures.

If Vodafone prevails in the bidding, it will have to sell its 45 percent stake in Verizon Wireless. Vodafone already has a tentative agreement with Verizon Communications Inc., the majority owner of Verizon Wireless, to sell its stake for $23 billion if its bid succeeds.

The auction of AT&T Wireless, with its 22 million customers across the country, comes at a time of intense competition for the wireless phone industry, which has been engaged in heavy price wars and marketing campaigns.

The battle is over billions of dollars in annual subscription fees. And the business is expected to grow still more lucrative over the next five years as wireless providers roll out high-speed data access, allowing them to charge additional fees for providing Internet service.

Intense price-cutting has made for a difficult business. The competition heightened in late November, when federal rules went into effect that let mobile phone customers to take their phone numbers with them when they switch providers. Some market researchers projected a flood of defections from carriers, but the effect has been muted.

Still, the so-called portability rules gave some sense of the company's relative strengths. Analysts said Verizon Wireless and Nextel Communications Inc. fared particularly well. Notably, AT&T Wireless appeared to falter, losing more customers than its rivals, analysts said.

The company also lagged by another measure. Last quarter, the company added 128,000 subscribers. That compared with 642,000 for Cingular, and 390,000 for Sprint. Verizon Wireless added 1.5 million.

The troubles exacerbated the struggles of AT&T Wireless, once the industry's strongest brand name. Over the past year, it has had technical and operations problems, though company executives maintained that the difficulties were isolated cases and not caused by systemic problems.

Executives also said the recent lapses were not the reason AT&T Wireless was put up for sale. Rather, they said, because of changing dynamics in the market, the time seemed right to gain an optimum price, and, in turn, to recapture some of the tens of billions of dollars in equity the company has lost in recent years.

AT&T Wireless went public in April 2000. Its stock price briefly rose to the mid-$30 level, then dived along with much of the market, including its wireless competitors.

Among the tricky dynamics now facing AT&T Wireless is that it has been a stand-alone company, splitting off from AT&T in 2001.

Around the same period, other wireless competitors found themselves becoming part of larger telecommunications conglomerates. Bell Atlantic and what was then Vodafone AirTouch merged and, in 2000, renamed the company Verizon Wireless. The same year, SBC Communications Inc. and BellSouth Corp. merged their wireless operations into Cingular Wireless.

In each case, the mobile providers had parent companies with deep pockets, and the parents wound up with the ability to use their newfound scale to cut costs and squeeze equipment suppliers into selling to them at lower prices.

The merged companies leapfrogged AT&T Wireless, leaving it in third place measured by subscribers.

Wall Street analysts have had mixed views in attributing blame for the recent problems of AT&T Wireless. Some have blamed the company's management, and its chief executive, John D. Zeglis. But others have said that these can be worked out, leaving a fundamentally sound company.

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