SBC Communications and BellSouth officially launched their wireless joint venture yesterday. The new company with the funny name will be the second-largest wireless provider in the U.S., with 19 million customers, and will face an increasingly competitive field, both in the consumer and capital markets.
By
The companies initially announced their plans to combine wireless operations in April, and have now received all the necessary regulatory approvals. The arrangement comes as shares in wireless service providers have fallen in the face of increasing competition, concerns over upcoming spectrum auctions, and a potential glut of wireless provider IPOs.
The new company
Cingular is the second-largest wireless service provider in the U.S., with about 19 million subscribers in 38 states and a nationwide network that reaches 190 million people, or 70% of the U.S. population. The company estimates annual revenues will be approximately $12 billion. Cingular is jointly owned, 60% by SBC and 40% by BellSouth, with profits flowing proportionately to each company. According to CEO Stephen Carter, the company's name "shows the importance of the individual customer, as well as the unity of this joint venture."
Wireless providers under pressure
While the combination has its merits -- not least is the consolidation of 11 regional brands into a cingular nationwide one (sorry) -- Cingular nevertheless has its work cut out for it. The company is the sixth nationwide wireless provider, and will face stiff competition that has recently taken its toll on wireless carrier stocks.
For example, shares in Sprint PCS (NYSE: PCS) fell hard when the company announced lower-than-expected net new subscribers and higher-than-expected customer turnover two weeks ago. Meanwhile, AT&T Wireless (NYSE: AWE) also recently reported higher turnover, or "churn," for its third quarter. Yesterday, wireless provider Nextel (Nasdaq: NXTL) became the latest victim, as its shares fell over 12% after the company announced that it missed its third-quarter subscriber target, even though it was only 10,000 short, adding 540,00 new customers rather than the forecasted 550,000. (For more data on the current wireless provider landscape, check out this post, which lists subscriber numbers, revenues, and other info.)
The IPO question
Cingular faces a tougher capital market than it would have a few months ago, and may be less likely to sell shares to the public as a result. While the company was noncommittal in yesterday's conference call on the subject of a future spin-off or IPO, CEO Carter mentioned that the company will be looking at its "capital structure" over the next several weeks.
On the one hand, like all wireless carriers, the company could certainly use as much cash as it can get. Cingular plans to continue to expand its nationwide network, and also wants to upgrade a large part of it to the higher-data-rate transmission standard known as GPRS (General Packet Radio Service) by next year's first quarter. Also like its fellow providers, the company faces what may be a costly auction of third-generation wireless spectrum next year.
On the other hand, a glut of wireless carrier shares over the next several quarters is possible. Parent company AT&T (NYSE: T) plans to divest more of its shares of AT&T Wireless -- it owns about 84% of the tracking stock -- and Verizon (NYSE: VZ) will conduct an IPO later this year. This potential excess supply may already be adding to the downward pressure on wireless provider stocks.
Clearly, raising capital and competing in a tough market will present more than just a cingular challenge for the new company.
Your Turn:
Do you think Cingular will sell shares to the public, or will it perhaps seek partnerships with deep-pocketed partners, including perhaps foreign carriers? Let us know on the SBC Communications discussion board.
Related Links:
RSS Headlines
Fool UK
