The major trade union in the US telecommunications industry, the Communications Workers of America, has backed Cingular Wireless’s bid to buy AT&T Wireless Services Inc, and called the pairing “an excellent match that will benefit shareholders of both companies.”
Commenting on the possibility of rival bids, CWA president Morton Bahr said: CWA will urge the half-million CWA members and retirees who hold AT&T Wireless stock, as well as major pension funds and investment groups, to support a deal with Cingular.
This is the only potential merger that creates the necessary scale to compete in the US wireless marketplace, he stated. Cingular’s bid promises a clean, one-step transaction that will receive speedy regulatory approval.
The union has 170,000 workers at SBC, BellSouth and Cingular, and overall represents 700,000 members. Most CWA members and retirees in the industry own AT&T Wireless stock.
It is more than a little surprising that the union is backing the Cingular bid because such a merger would be likely to mean substantial job losses. Cingular has already identified approximately $3bn of cost synergies if the merger were to go ahead.
According to people close to Cingular, a merger would allow it to cut the combined operating expenses of the two companies by at least $1bn a year, and trim nearly $2bn off its annual capital expenditure budget. The reductions in operating expenses would be achieved by savings on market and advertising budgets, as well as headcount reduction.
If a foreign operator such as Vodafone Group Plc or NTT DoCoMo Inc were to achieve control of AT&T Wireless, it would have to keep its network going as a separate entity and pump in additional funding.
Of the potential foreign bidders, Vodafone is the most likely because it would benefit from sorting out its position in the US where its 45% stake in market leader Verizon Wireless does not allow it to control its own destiny or use its own brand in the world’s most important market.
Analysts have dismissed speculation in the Wall Street Journal that instead of bidding for AT&T Wireless, Vodafone could instead table a bid for local phone giant Verizon Communications, which owns the other 55% of Verizon Wireless.
Verizon Communications could command a price tag of $160bn to $170bn, as opposed the $30bn to $40bn for AT&T Wireless. Other than the hefty purchase price if it succeeded in purchasing Verizon Communications, US regulators would likely force it to sell the carrier’s fixed-line and other related business, which in the past have contributed roughly 60% of its $70bn in revenues.
Vodafone would therefore have to pay a substantial premium for the carrier, which is roughly its own size, and then dispose of the fixed-line operations, probably at a substantial discount. Add to the mix that there is no obvious buyer for the fixed-line operation, plus incompatible technology between Verizon and Vodafone, it is very hard to see how Vodafone boss Arun Sarin could justify a bid to his board.
Formal bids are due this Friday. Companies in the race include front-runner Cingular, followed by Vodafone, NTT DoCoMo, Nextel Communications, and T-Mobile USA.
This article is based on material originally published by ComputerWire