Just more than a month after closing its $41 billion acquisition of AT&T Wireless Services Inc., Cingular Wireless L.L.C. said it expects to post a quicker return on its investment than it originally predicted. The nation’s largest carrier also reaffirmed its commitment to deploy UMTS/HSDPA-based services beginning next year and announced infrastructure contracts with several vendors.
During an analyst conference call, Cingular said it expects to post between $3.6 billion and $5 billion in cost savings from its acquisition of AWS by 2007, which is nearly double the $1.8 billion to $2.7 billion the carrier forecast earlier this year. Cingular also said it expects to post a profit and positive free cash flow beginning next year, a year ahead of previous forecasts.
In addition, Cingular’s management reported fourth-quarter net customer additions are running ahead of combined third-quarter results as well as improved customer churn. Cingular and AWS posted a combined 798,000 net customer additions during the third quarter. Cingular also posted 2.8-percent customer churn during the quarter, while AWS reported 3.7-percent customer churn, which were both above the segment’s average of 2.5 percent.
Cingular said it expects the newly combined operations to post industry-leading operational metrics by 2007.
“My clear expectation is that we will achieve steady, continuous improvements to reach industry-leading metrics, including churn and margins, by the end of 2007,” said Stan Sigman, Cingular’s president and chief executive officer.
S.G. Cowen & Co. telecommunications industry analyst Tom Watts noted that while the update provided an optimistic view of what is expected to be a difficult integration process, the presentation did not provide detailed guidance on revenue; earnings before interest, taxes, depreciation and amortization; or earnings per share and instead relied on cost “deltas.”
“The next few quarters should provide a baseline,” Watts said in a research note.
Ralph de la Vega, Cingular’s chief operating officer, also noted that the carrier was ahead of schedule on integrating AWS’ operations, and that it expected to have the process complete by the end of 2006. Cingular said 90 percent of new customers are being added through a common sales experience initiated by the carrier, and that it expects to have 40 percent of former AWS customers switched to Cingular’s billing systems by the end of next year and full integration by the end of 2006.
During the presentation, Cingular also said it expects capital expenditures to peak next year at around $7 billion as it begins deploying its UMTS/HSDPA network as well as improving AWS’ network capacity in California and Nevada to compensate for the previously announced $2.5 billion sale of the Cingular network in those markets to T-Mobile USA Inc.
Cingular also reaffirmed its plans to begin deploying an UMTS/HSDPA-based network next year with plans to cover most major markets by the end of 2006. The current deployment plans call for between 15 and 20 markets to be commercially launched by the end of 2005, with the remaining markets activated during 2006.
Cingular noted the network would provide throughput speeds of between 400 and 700 kilobits per second, which is more than double the speeds currently available from the carrier’s inherited UMTS network from AT&T Wireless and slightly faster than the 300 to 500 kbps speeds offered on CDMA2000 1x EV-DO networks.
In support of the network plans, Cingular said it has signed agreements with Lucent Technologies Inc., Siemens Communications Inc. and Ericsson Inc. to develop and deliver the infrastructure required for a broad-scale deployment. Cingular also contracted with Nokia Corp. to enhance its existing GSM/GPRS/EDGE network and possibly support the UMTS deployment. Financial terms of the agreements were not released, though Lucent said its deal is for four years, Siemens said its deal is a multi-year agreement, and Nokia said its agreement is a two-year extension for GSM/EDGE network equipment, software and services.
Cingular noted that all of the infrastructure would be compatible with both the 1.9 GHz and 850 MHz spectrum bands, and its recent acquisition of AWS provided the carrier with sufficient spectrum to begin rolling out more advanced services. The inclusion of support for the 850 MHz spectrum band is expected to provide Cingular’s rural roaming partners with the ability to launch advanced services and was one of the stipulations Cingular included in its request for proposals sent to infrastructure providers earlier this year.
Cingular added that it holds an average of 58 megahertz of spectrum in the nation’s top 100 markets, and it would like to use its 850 MHz spectrum licenses as much as possible, leaving its 1.9 GHz spectrum for international roaming opportunities. Most international handsets include support for the 1.9 GHz spectrum bands in addition to the 900 MHz and 1.8 GHz spectrum bands used in Europe.
Cingular also said it has agreements with its strategic handset providers Nokia, Motorola Inc. and LG Electronics Co. Ltd. to deliver UMTS devices in the fourth quarter of next year. The carrier said the devices would include “attractive form factors and feature functionality that takes advantage of the increased data speeds.”
Industry analyst firm Current Analysis Inc. noted that while it was important for Cingular to firm up its next-generation deployment timelines, consumer-friendly devices using HSDPA technology are not likely to be ready once the networks are commercially launched.
“Since Cingular is waiting for the addition of HSDPA, it is very possible that the initial service launch will not include handsets capable of using HSDPA and will instead rely on the slightly slower data speeds of standard W-CDMA networks due to the amount of time that it will take for the handset vendors to fully develop handsets capable of working with HSDPA,” Current Analysis explained.
Current Analysis added that the delay could result in Cingular trailing Verizon Wireless by roughly a year in the deployment of next-generation services “since Verizon Wireless should have coverage in roughly 50 of its top markets by the end of 2005.”
Cingular’s current UMTS operations are available in Dallas, Detroit, Phoenix, San Diego, San Francisco and Seattle using the 1.9 GHz spectrum band and devices provided by Motorola, Nokia and Novatel Wireless. AWS, which launched the network earlier this year, said the network provides average throughput speeds of between 220 and 320 kbps.
Analysts noted that it is likely Cingular will forgo additional enhancements to its current UMTS deployments in favor of infrastructure with HSDPA capabilities.
