Cingular Wireless LLC has agreed to sell the rights to airwaves worth $2.5 billion to T-Mobile USA Inc. The sale would end the two companies' agreement to jointly operate mobile phone networks in California and New York, in hopes of heading off antitrust objections related to Cingular's acquisition of AT&T Wireless.
The overlapping mobile phone networks that Cingular and AT&T have in large parts of California have raised concerns among Justice Department officials about the combined companies' market power in the state, according to sources familiar with the discussions. The deal with T-Mobile aims to ease those concerns and is contingent on Cingular closing its deal with AT&T Wireless.
The Cingular-AT&T Wireless combination faces similar concerns in Florida and Texas, and Cingular may pursue deals to shed or swap spectrum in those states in coming months, sources said yesterday. Cingular's $41 billion purchase of AT&T Wireless, announced in February, is on track to close by the end of the year.
Some analysts said Cingular's apparent willingness to quickly finalize an agreement with T-Mobile suggests the company is in a hurry to finalize its acquisition of AT&T Wireless. AT&T Wireless was hit by software glitches last year that hindered its ability to sign up new customers. The company's troubles continued into the first quarter of this year when it reported that it lost 367,000 customers. By contrast, Cingular added 554,000 subscribers during the first quarter of 2004.
"The fact that AT&T [Wireless] is having problems increased their motivation sooner rather than later, no question about it," said Patrick Comack, a telecommunications analyst with Guzman & Co.
Under terms of the deal announced yesterday, T-Mobile will pay approximately $2.5 billion in cash for airwaves in 10 California markets, including San Diego, Sacramento and San Francisco. In a much smaller deal, Cingular also plans to buy a slice of spectrum from T-Mobile in New York, where it needs additional airwaves even after the deal closes with AT&T Wireless.
The deal with T-Mobile is projected to close in the first quarter of 2005. It brings an end to a joint venture that allowed the two companies to bolster their reach in growing markets such as New York and Los Angeles by sharing their networks.
Although Cingular and T-Mobile are exchanging airwaves, they will not be trading subscribers and the deal should not affect existing subscribers' service, the two companies said yesterday.
T-Mobile owns less spectrum than most of the large wireless companies and is an eager buyer of airwaves. "T-Mobile wants to improve their situation any way they can," said Albert Lin, a telecommunications analyst with American Technology Research.
Cingular and T-Mobile also entered into a roaming agreement that allows their customers to use both companies' networks. "The nationwide reciprocal roaming agreement ensures that our customers will have access to the nationwide networks of T-Mobile USA and Cingular, providing them with the greatest possible coverage," said T-Mobile USA Chief Executive Robert Dotson in a prepared statement released yesterday. T-Mobile USA is a subsidiary of German telecommunications conglomerate Deutsche Telekom.