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SBC, BellSouth Put on CreditWatch Negative

On Feb. 17, 2004, Standard & Poor's Ratings Services placed the ratings of regional Bell operating companies SBC Communications (SBC) (corporate credit rating 'A+'; commercial paper rating 'A-1') and BellSouth (BSC) ('A+'; 'A-1'), as well as wireless carrier Cingular Wireless ('A+'; 'A-1'), on CreditWatch with negative implications. At the same time, the CreditWatch listing for AT&T Wireless Services (AWE) ('BBB'; 'A-2') has been revised to positive from developing.

These actions reflect the announced agreement by Cingular to acquire AT&T Wireless' stock for $41 billion in cash, plus the assumption of AT&T Wireless' $10 billion of debt. It is expected that Cingular's parent companies, SBC (60% owner) and BellSouth (40% owner), will fund a major portion of their proportionate shares of the total $36 billion approximate net cash funding of the transaction with debt. The CreditWatch listing reflects the potential impact of this additional debt.

In addition, Standard & Poor's will assess the effect on these companies' business risk profiles that the acquisition will have, including integration risk, as well as greater scale and other synergistic benefits. Given that there will still be five major national wireless players after this transaction, industry competition and pricing pressures may not be markedly reduced from this combination. In fact, pricing pressures may be exacerbated if Cingular chooses to be more aggressive.

The ratings for Cingular were placed on CreditWatch because the company is rated with its parents. The revised CreditWatch listing for the AT&T Wireless ratings reflects the company's potential acquisition by the higher-rated Cingular entity.

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