MERGERS - Can You Hear Us Now????

By: Nadeen Makhlouf
College Now Course - BA 10

As a cell phone user, as most teens are, I came across this article regarding mergers. I was more than surprised to find that Cingular merged with AT&T. I reviewed the section on mergers in our textbook, Business, 5th Edition, by Pride, Hughes, Kapoor to understand what this means for young adults.

According to our text, mergers seem to be growing because a larger firm has more sales revenue and it can boost power, prestige, and reputation. Our text further states that the merged companies can produce benefits for the shareholders that the individual companies cannot offer. There are three types of mergers: horizontal, vertical, and conglomerate merger. Horizontal is a merger between firms that make and sell similar products. Vertical is a merger between firms that operate at different but related levels. Conglomerate merger is one in which the companies are completely in unrelated industries.

Cingular won the bid for AT&T Wireless. Since both companies are in the same industry, this would be considered a horizontal merger. In February of 2004 Cingular Wireless proposed $41 billion to acquire AT&T Wireless and won the bid. According to USA TODAY this merger will create shockwaves across for U.S. phone, wireless, and cable companies (all industry-related firms). This merger will result in the largest U.S. cell phone company under the name of Cingular Wireless. Cingular now has 48 million customers, passing Verizon's 37.5 million customers. Cingular beat out Britain's Vodafone which is the world's largest cell phone carrier. This merger has resulted in AT&T Wireless investors getting $15 in cash for each share, more than twice its value two months ago.

At the time the article in USA TODAY appeared, it stated that most analysts say the acquisition could spark another merger involving the remaining national carriers: Verizon Wireless, Nextel Communications, Sprint PCS and T-Mobile. I just read recently that Verizon is merging with Nextel. This is a sign that competition has intensified as rivals attack AT&T Wireless and Cingular. As a young purchaser of cellphone service, I wondered if prices for the service would increase. However, the article states that even though the number of national cell phone carriers would drop to five from six, there is enough competition to keep prices low. This will also intensify the price battles for the cost of local and long distance services, wireless, high-speed internet, and satellite tv. This can be bundled and sold at a discount. Chief Executive, Edward Whitacre, Jr., says, "We can offer services that some of our competitors will have a problem matching." AT&T Wireless CEO, John Zeglis, hinted at a tough time for rivals. "Hey, Verizon," he joked. "Can you hear us now?"

I am glad that I am now able to understand something that is going on in society that will definitely affect me as a cell phone user. I am waiting to see how they do and see if they offer lower prices, so that I can change my plan and possibly become a customer. I will read the newspapers carefully to keep myself updated.

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