18th February , 2004

US : Julian Hewett offers the following comment on Cingular's victory over Vodafone which has pulled out on the AT&T bid. He says:

"The trouble with offering an opinion on a takeover bid is that you are either 100% right - or 100% wrong. Fortunately for me - and for Vodafone shareholders - Vodafone has just confirmed that it has pulled out of the bidding for AT&T Wireless. Vodafone shares have leapt by 7%. Cingular has confirmed its bid at $15 cash per share, valuing AT&T Wireless at $41 billion.

"It's a very full price for a business with falling subscriber numbers and profits. If Vodafone's game was to drive up the price, then it's certainly succeeded.

"This deal will put Cingular in a commanding position, 8m subscribers ahead of Verizon Wireless, who now find themselves in second place (see below).

Subscriber numbers (at September 2003):

Cingular + AT&T Wireless = 23.4m + 21.9m = 45.3m

Verizon Wireless 36.0m

Sprint 15.5m

Nextel 12.3m

T-Mobile 12.1m

"We have long believed in consolidation in the US telecoms market. We can now expect Cingular / AT&T Wireless to become the consumer market powerhouse. The combined company will mean strong competition for T-Mobile, who sit uncomfortably between the two players. However, we expect that AT&T Wireless will continue to struggle to retain its business customers.

"We expect Verizon Wireless to continue to lead the business market, partly because of its new CDMA2000 high-speed data services. Meanwhile, Sprint PCS seems to be struggling. Perhaps they will become a takeover target for Verizon Wireless?

"Where now for Vodafone? It will now need to take a longer-term view in the US. With 3G, the technical differences between GSM and CDMA will get smaller. Roaming may become possible for Vodafone's business customers. (Currently they roam on T-Mobile's network.) Perhaps Vodafone can develop a virtual 3G service on Verizon Wireless' network.

"Attention will now turn to France, where the period during which Vodafone was not allowed to bid for the whole of SFR has recently expired. Vivendi shares have risen on today's news.

"The observation I enjoyed most was that - for the same price - Cingular could have afforded to pay every single AT&T Wireless subscriber at least $1,000 to sign up to Cingular's service instead! An expensive way of acquiring customers, no?" he says.

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