With a $41 billion deal to purchase lesser rival AT&T Wireless
The deal to sell a major portion of its network will terminate a network-sharing agreement between the two companies that has been in place since 2001. The deal allows Cingular to use Deutsche Telekom's New York network in exchange for the use of Cingular's Los Angeles network. Without the agreement, both companies would miss out on a major market in the U.S.
The move to replace this agreement is a smart one for Cingular, too. First, it helps the company raise much-needed cash for the purchase of AT&T Wireless. The Deutsche Telekom deal will reportedly bring Cingular a net $2.3 billion when it is executed. Only $38.7 billion to go.
But the divesture helps in another big way -- regulatory approval for the merger. When telecom companies merge, U.S. regulators put the partners through a fine-toothed comb, looking for areas where a company could gain monopoly control of any given market. In Cingular's case, both it and AT&T Wireless own significant amounts of spectrum in many major California and Nevada markets.
Usually, companies will be forced to divest assets as a precursor to the merger, keeping the playing field level for all parties. By selling its California and Nevada network, Cingular is removing concern for this duplication and will just migrate its users onto AT&T Wireless' network in these markets -- if and when the merger goes through, of course.
Cingular's parent, SBC, has had a busy day, also announcing a new union contract with 100,000 of its workers after a four-day strike. The strike had virtually shut down the customer service aspects of the business, though automated phone services remained intact.
Both announcements help ease some controversy about SBC as analysts fret over continued customer defections at AT&T Wireless. The jury is still out, however, on how effectively the new wireless juggernaut will stack up against the No. 1 wireless provider, Verizon Wireless (part of parent Verizon Communications
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Fool contributor Dave Mock will reportedly divest his rock collection assets to avoid unnecessary scrutiny by the IRS. He owns no shares of companies mentioned here.