Merger Complete, Questions Just Starting
By Mike Masnick, Tue Oct 26 22:45:00 GMT 2004

Given the lengthy review process by the Department of Justice and the FCC, there has been plenty of time for reporters, analysts and armchair pundits to think through the implications of the Cingular acquisition of AT&T Wireless. It seems like the combined company will have much less time to prove they can make this work.

While the idea that US cellular operators needed to merge has been repeated so many times that it seemed like an absolute certainty, now that it's happened people are beginning to wonder if it was worth it at all. The main stat people have been pointing out is that this helps Cingular pass Verizon Wireless as the leading provider. There's just one major problem: that lead may be fleeting fast. AT&T Wireless and Cingular were the only major operators to see market share decrease in the second quarter -- in part due to promotional campaigns from competitors, while Cingular and AT&T Wireless had to spend time and money dealing with all the legal and regulatory issues associated with the merger.

This may be a precursor for the next few years, where Cingular spends time and money on integration and everyone else matches it with campaigns to poach customers. Cingular has already admitted that it expects the churn rates to increase over the next few months, as it makes an effort to stabilize the two ships, begin the integration process and still continue to build a next generation network.

The most immediate issue, however, is perception. AT&T Wireless has had a fairly negative reputation when it came to customer service, which many blame on a series of missteps by AT&T Wireless management. Convincing people that the new, combined offering will take the good of AT&T Wireless without the bad is going to take quite a bit of effort. Cingular claims that the combined assets of the merged company will help alleviate the service problems -- but that integration is expected to take nearly two years, assuming all goes well.

During those two years Cingular will also have to build out its 3G UMTS network, where it's already noticeably behind Verizon's competing EV-DO network. So, much of that integration is actually about integrating a moving target. Both Cingular and AT&T Wireless had separate UMTS rollout plans, so turning those into a single, unified plan is going to be a major task. To deal with all this, it's expected that the short term solution to win back customers will be to drop prices -- just as Cingular's going to need that cash the most. It will be managing two separate systems while trying to figure out how to integrate them without causing more customer problems.

With all these challenges, it seems highly unlikely that Cingular will be able to remain in the top spot (for whatever that's worth). However, a bigger concern is whether or not it will be able to handle this merger at all, or if it will simply stall the combined company out, allowing many other operators to pass them by.