Although the new Cingular will be bigger than its next-largest competitor-Verizon Wireless,with million customers - this initially might be a case where bigger is not better.
Merger aside, the challenges are no secret.
Last year, AT&T Wireless and Cingular lost more customers than competitors Nextel, Sprint PCS, T-Mobile and Verizon Wireless. Cingular has to find a way to stem the exodus as it absorbs AT&T Wireless. According to a report published by consulting firm Mobile Competency Cingular's quarterly churn rate in 2003 averaged %. The company lost nearly one-third of its customers last year. AT&T Wireless wasn't far behind, with quarterly churn rates averaging %.
Average churn at Nextel Communications last year was % and % at Verizon Wireless.
Why are AT&T and Cingular having trouble holding on to customers? Because of "poor customer service, spotty coverage and a difficult transition from one network technology to another," says Bob Egan, president of Mobile Competency in a report.
Egan points out that combining the companies doesn't erase their problems, but rather "will only exacerbate them."
As each company operates separately over the next 10 months, both should seriously address customer service issues, from network coverage, service quality and billing problems, experts say If each has not reduced customer defections before the merger, it will be that more difficult to do so once the new Cingular integrates services and platforms.
While AT&T Wireless and Cingular like to focus on their GSM networks, both still operate legacy Time Division Multiple Access networks throughout the .That's four different networks and even more billing systems that will have to be integrated. "Merging these networks together will be more complex than previous merger attempts undertaken by most carriers," according to a report from Current Analysis.
Experts say the carriers are dealing with too many networks and back-office systems to provide for a smooth network transition.
Despite a predicted dicey beginning, the joined companies should be able to offer customers stronger geographic coverage. Cingular says that with AT&T Wireless' network reach it will have service coverage in 97 of the top 100 markets. It has services in 87 of those markets today The report from Current Analysis says, "the additional spectrum will help improve overall quality of service as it will reduce the likelihood of dropped calls."
One additional bright spot for Cingular and its customers is that AT&T has a wireless data service in place.
"Wireless data is somewhere between a placeholder and a big void for Cingular," says Roger Entner, an analyst at The Yankee Group. It would make the most sense if Cingular rolled out AT&T's mMode wireless service to all of its customers once the deal goes through, he says.
Although neither carrier has push-to-talk service today, both are working with Ericsson and Nokia to get this service up and running. Because they use the same vendors it's more likely that the services will interoperate after the merger, Entner says.
One benefit of the deal that might be felt throughout the business-user community is price reductions.
"Everyone will continue to see declines in prices," Entner says. "Not necessarily as quickly as in the past, where we saw 20% to 25% [price declines] per year, but we should still see prices decline in the teens."
Even though this merger is expected to be the first of several big deals that could shrink the number of big national carriers from six to perhaps three over the next few of years, everyone is still fighting for a bigger piece of the market.
As both Vodafone and NTT DoCoMo lost on their bids for AT&T Wireless, it's still possible both will look to acquire a domestic wireless provider. T-Mobile seems the most likely because it's the only other GSM provider besides AT&T Wireless and Cingular left of the big six. But according to press reports, Deutsche Telekom, T-Mobile s parent, isn't selling. Then there is Nextel, which has no ties to any . provider because its network is based on a proprietary Motorola technology.
Analysts have speculated that Verizon Wireless might seek out Sprint PCS or smaller national player Alltel to expand its customer base and revenue.
Cingular's acquisition is subject to regulatory approval, but executives say they expect it to close by year-end.
