For months rumors circulated about the likelihood that Cingular Wireless would purchase AT&T Wireless, so it came as no surprise in February 2004 when the company announced it would pay $41 billion to purchase its former competitor. But in the months following the proposed merger, many in the industry were taken aback by the speed with which the carrier was able to get the takeover approved by the FCC and the U.S. Department of Justice (DOJ).
And once the merger was approved in late October, the company again impressed skeptics with the relative ease with which it integrated its sales processes with former AT&T Wireless and rolled out a whole new marketing and advertising campaign to educate consumers about the newly merged company. But perhaps the greatest accomplishment so far has been the way Cingular literally overnight transformed thousands of AT&T Wireless stores to Cingular stores, an impressive achievement for any retail entity.
Merging two powerful and highly competitive companies to form one supercarrier with 49.1 million subscribers (as of the end of 2004) is no easy feat, but the initial steps that Cingular Wireless has taken to accomplish this goal are impressive and it's the reason the operator was selected to be this year's recipient of the Wireless Week
Carrier of the Year Excellence Award.
When Cingular Wireless first announced its merger with AT&T Wireless, company executives quickly realized that getting the merger approved and completed before the critical 2004 holiday buying season that following November was imperative for the company's success.
"Traditionally up to 40 percent of the buying in wireless happens from the day after Thanksgiving until the end of the year, and we didn't want to miss that window," says Stan Sigman, Cingular Wireless president and CEO. To ensure that the merger happened in a timely manner, Cingular executives communicated the importance of the timing to all the merger players, particularly the DOJ and the FCC. That diligent work paid off when the government gave final approval to the merger Oct. 27.
Message On Point Although much effort was dedicated to fulfilling the government's demands, there also was a lot of activity behind the scenes where teams of employees were planning the company's marketing and advertising efforts that would be unveiled once the merger finalized. Close attention was paid to making sure that the advertisements, in particular, incorporated elements from both Cingular's identity (the Jack logo) and AT&T Wireless' "Raising the Bar" message. "All of the advertising had been developed and approved [by the merger's approval]. We put a lot of thought behind that," Sigman says. "I thought the advertising was very effective."
The company also made sure that it kept in close contact with its customers and reduced any impact of the merger on the customer. Immediately after the merger was approved, Cingular sent customers what the company refers to as its "wedding invitation," a mailer that welcomed subscribers to the new Cingular.
"This is all about focusing on the customer," Sigman says. "We have this company down to the lowest levels focused on the customer experience." And the proof of that extra attention is in the numbers. The company's pro forma fourth-quarter churn was 2.6 percent, compared to analyst estimates of 3 percent. That 2.6 percent churn rate includes reseller disconnects. Without resellers, the company's pro former churn in the fourth quarter would have been 2.4 percent overall.
Not only was churn down, but Cingular also was successful in adding new subscribers. In the fourth quarter, Cingular added nearly 1.8 million net subscribers and had record gross subscriber additions of 5.5 million.
"Cingular did pretty well rejuvenating subscriber growth in the fourth quarter," says John Byrne, analyst with Kagan Research. However, he adds a caveat. "Whether that translates into things like growing cash flow and improving margins is uncertain. It will take time to see if those results will happen."
Byrne isn't alone in his positive assessment. "Cingular had a spectacular fourth quarter," says Roger Entner, program manager, wireless mobile services with the Yankee Group. "It is much better than you could have expected at the close of the merger. They did a terrific job."
Others, however, believe that first quarter 2005 results will be more revealing for the company because it will be the first full quarter for the merged company. "Fourth-quarter numbers were pro forma. I think the first quarter will be very telling for the long-term success of this merger," says Iain Gillott, founder and president of iGillott Research.
Competitive Posturing Skeptics certainly aren't strangers to Cingular Wireless. Since the merger was announced, competitors and naysayers have speculated that Cingular would spend much of 2004 concentrating on getting the merger approved and the majority of 2005 integrating the two companies. Sigman doesn't downplay the significance of the integration of the two networks, nor the subsequent backoffice issues that still must be overcome. "We have done a good job of integrating sales and the sales process, but we still have 18 months of work integrating the two networks into one network so we are just supporting one network," Sigman says. Still, the job ahead doesn't intimate Sigman, a 40-year telecom industry veteran. "I've participated in many mergers in my history of wireless. So we've seen it before and it's not anything that can't be done or that scares me."
Already the company has spurred some competitive posturing among the Tier 1 operators, particularly Verizon Wireless, which trumpeted the advantage of mobile-to-mobile calling among its 40.4 million customer base only to be surpassed by Cingular, which now can offer the same service but to an even larger number of subscribers. In addition, since Cingular's merger, Verizon has been tweaking some of its rate plans to match Cingular's rates. "Because Cingular is so big, Verizon views it as a more threatening carrier," says Weston Henderek, senior analyst with Current Analysis. "They cut their Family Plan from $19.99 to $9.99. Also, Verizon dropped its roaming charges from its America's Choice plans as a result of Cingular's competition."
Exclusive Handsets Rate plans aren't the only area where Cingular is generating some competitive pressure. Thanks to the company's buying power with handset vendors, it has been able to launch exclusive handsets, foremost of which is the company's exclusive deal with Motorola for the RAZR V3 handset. "As a result of the merger, Cingular has been continuously upgrading its device portfolio," Henderek says. The RAZR is a premium-priced handset, Henderek says, and it has become a very effective marketing tool for the operator. "This shows that Cingular is on the cutting edge of devices," Henderek says.
But handsets aren't the only place where Cingular is exerting its leverage with vendors. The company also is requiring that its vendors have a strong U.S. presence. "I feel strong that our vendors need to be located in the markets we are located in, in our time zone, reading our news and understanding the competitiveness of our marketplace," Sigman says. "They are moving jobs over here. They are closer to us, and that is making us more responsive."
Moving To HSDPA Cutting-edge devices and leverage with vendors may be strengths for Cingular, but the company definitely is a bit behind the competition when it comes to high-speed data deployment. Competitor Verizon Wireless already has launched 1XEV-DO technology in several top markets and deployed V CAST, a comprehensive mobile entertainment service. Sprint is expected to follow with EV-DO deployments this year.
Sigman says that Cingular's underdog status will change once the company rolls out its UMTS network. Part of the impetus behind the company's merger with AT&T Wireless is that it now has the spectrum necessary to upgrade its GSM/GPRS and EDGE network to UMTS with high-speed downlink packet access (HSDPA). The company has an aggressive deployment strategy that includes rolling out UMTS/HSDPA in 20 markets in the fourth quarter and expanding that to 100 markets by the end of 2006.
Specifically, Sigman says the company wants those initial 20 markets up and running in time for the 2005 holiday buying season. And he's confident that when the company launches UMTS/HSDPA, devices will be available for customers. "We don't need a network if we don't have devices," Sigman says. "We recognized that in the contracts that we have with the infrastructure providers and there are device requirements in those contracts. I think the devices will be there when the network is ready."
Of course, the deployment of UMTS/HSDPA will mean that Cingular will be able to enhance its existing mobile entertainment content and launch new services, such as mobile video. "It gives you a lot of capabilities because of the speed UMTS and HSDPA will bring," Sigman says. "Video services, video-on-demand services and live video services are much better quality than what is out there today."
Considering the size and distinctly different cultures of Cingular and its merger partner AT&T Wireless, the company has done a commendable job combining these two separate entities into one cohesive brand. All eyes will be on Cingular as 2005 progresses to see if the company is able to maintain that leadership position as it navigates through the rest of its integration process and launches the highly anticipated UMTS/HSDPA service.