Cingular: It's Tough at the Top

Now merged with AT&T Wireless and bigger than former mobile leader Verizon, the new champ has plenty of big challenges ahead

By Roger O. Crockett

Just minutes after Cingular Wireless' $41 billion acquisition of AT&T Wireless won government approval on Oct. 26, executives distributed playbooks to its newly combined 70,000 employees. The subject: how to execute a smooth integration. Now it's game time.

On Monday, Nov. 15, 1,000 AT&T Wireless stores across the nation will open as new Cingular shops. The trademark blue of AT&T Wireless will be replaced with Cingular's orange, and retail shelves will be stocked with Cingular-branded phones, including spiffy new ones distributed exclusively to the merged company. "We're now a company that really covers the nation," says Cingular Chief Operating Officer Ralph de la Vega. "It's really going to change the game in the industry."

Perhaps, but Cingular had best not break out in a touchdown dance just yet. Sure, it has newfound bulk: By grabbing AT&T Wireless, Cingular now has 47 million subscribers and more than $32 billion in revenue, trumping former No. 1 Verizon Wireless' 42 million customers and $22.5 billion in revenue.

But Cingular faces formidable challenges. AT&T has a history of poor quality that has allowed competitors like Verizon and Sprint to poach customers. AT&T's 3.7% churn rate -- the monthly percentage of customers who bolt for other providers -- is highest among the nation's major carriers.


  Cingular will have to stem the defections while combining vastly different pricing schemes, billing systems, and network architectures. It will take more than a year to integrate them fully. "All those are going to be obstacles to overcome," says Rick R. Black, senior telecom analyst at Blaylock & Partners. "That's not an easy thing."

It's even harder with Verizon lurking over Cingular's shoulder. Verizon officials are being coy about marketing efforts that directly target Cingular. But it's clear they're not shying away from a major battle between the nation's two cellular behemoths. On Nov. 4. it purchased cellular licenses that will enhance its effort to stay ahead of the pack in the delivery of high-speed data service.

Like Cingular, scored an industry coup by securing new Motorola (MOT ) and Sony Ericsson phones that nobody else has, Verizon is stocking its own exclusive phones by Motorola and LG. Each carrier is also marketing service plans that play up the advantages of its network over the perceived weakness of its rival's. Price promotions are on the way.


  Cingular plans to use the clout of its freshly merged company to win rights to cutting-edge technology. In the next couple of months it'll debut two of the most anticipated phones in the country: The sleek Motorola Razr V3 on Nov. 15 and the Sony Ericsson S710i a few weeks later. Motorola officials have been itching for weeks to unveil the matchbook-thin Razr, but they agreed to wait until after the Cingular-AT&T Wireless merger to officially launch it. "You absolutely want to be a partner with the most successful carriers in the marketplace," says Ron Garriques, chief of Motorola's phone division.

Verizon, however, has its own unique phones. It sells Motorola's V710 camera phone and just launched the V265 on Nov. 12. Verizon is the first national carrier to offer these phones. And as the holiday season unfolds, subscribers can expect "very strong handset promotions," says Verizon Chief Operating Officer Lowell McAdam.

Bet on many of those featuring Verizon's flagship supplier, LG. Verizon has worked closely with LG in recent years to customize phones to Verizon's demanding specs. By doing that, Verizon officials say they can offer users an overall wireless experience -- ease of use, clarity of calls -- they won't find anywhere else. "It's more important to have the overall experience be better than to simply have a piece of hardware," McAdam says.


  What gives Verizon an edge over Cingular and other carriers is a network top-rated by J.D. Power & Associates. It got in the game early, acquiring loads of licenses in the initial cellular auctions. And it has never stopped "expanding the pool," McAdam says. The New York-based operator is adding customers at an industry-leading pace -- recording 1.7 million net new subscribers in the third quarter, compared with 657,000 for Cingular and AT&T Wireless combined. And Verizon boasts one of the best customer-retention records in the business.

Cingular's acquisition of AT&T Wireless gives it network coverage comparable to Verizon's. So, on Nov. 4, Verizon upped the ante. It paid $3 billion to buy additional wireless licenses from bankrupt NextWave Telecom. It's a move designed for growth.

Verizon is also building a next-generation broadband service that will let customers send data at speeds up to 400 kilobits per second. While every carrier has plans to rollout robust data service, Verizon's network is farthest along. And acquisitions like NextWave give it a chance to stay ahead of rivals such as Cingular. "This spectrum will become crucial over the next two year's time as 3G data is rolled out and voice requirements continue to grow," according to a report by UBS.


  To hold off its hard-charging rival, Cingular is hustling to make sure its dual network doesn't have glitches. Cingular says it will introduce a promotion on Nov. 15 that will allow its users to connect to the best of its combined networks. For example, a call from Atlanta, where both AT&T and Cingular have service, would find the strongest signal available -- whether it's on AT&T's or Cingular's network. The idea is to keep users from encountering spots where one carrier or the other doesn't have coverage.

The trouble is, even Cingular COO de la Vega admits such seamless coverage won't happen overnight. It's rushing to arm phones with special cards that seek out the ideal network. And it's working on disparate network equipment in the field to tie them together. Markets such as Chicago still have considerable work left before all the gaps are bridged. "I view it as an 18-month process until items really start humming," says Michael J. Grossi, vice-president for wireless at strategy consultancy Adventis.

The good news is that Cingular's acquisition gives it the breadth of coverage it couldn't claim before. In an allusion to its new size, a barrage of TV and print ads call the new system the "All-Over Network." In a move that counters an existing Verizon offering, Cingular is now promoting a plan that lets AT&T Wireless and Cingular users save when they call among the merged Cingular family of subscribers. "I don't know anywhere else where 47 million people can call each other for free," de la Vega says. "It's unprecedented."

No doubt, Cingular has added much-needed network capacity and acquired more customers. But "he who has the most subscribers isn't necessarily king," Grossi says. Cingular will have to execute its game plan flawlessly to stay one step ahead of its archrival Verizon.

Crockett is deputy manager in BusinessWeek's Chicago bureau

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