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AT&T Wireless’ acceptance of a $41 billion bid by Cingular Wireless LLC puts the company on a more predictable regulatory path than if it had selected Vodaphone Group plc’s slightly lower offer. And while the Department of Justice’s antitrust review will examine competitive overlaps among the merger partners, experts said that, at worst, Cingular will have to divest assets in half a dozen markets to secure government clearance. Company comments Tuesday reflected this confidence. “We expect to get the required approvals from the Department of Justice and the Federal Communications Commission,” Cingular chief financial officer Rick Lindner told analysts. Antitrust and market watchers generally shared that view. “We continue to believe the deal will be approved, though as we have noted there is some risk of local market divestitures,” Legg Mason Inc. analyst Blair Levin wrote in a research note. Most at risk are markets where Cingular and AT&T Wireless have higher than normal market shares because they won the initial wireless licenses. Levin said these include Dallas, Miami, San Antonio, Oklahoma City, Orlando and Jacksonville, Fla. Cingular could be required to divest spectrum and customers in all six markets. Cingular officials, however, said Tuesday that the merger raises no competitive problems. “There should be no divestitures, and we will argue that position,” Cingular CEO Stan Sigman told analysts. Cingular’s parents have hired antitrust counsel for the wireless carrier. BellSouth Corp. has retained Stephen Axinn, a partner at Axinn, Veltrop & Harkrider in New York, and Donald Russell, a partner at Robbins, Russell, Englert, Orseck & Untereiner in Washington, while SBC Communications Inc. has hired Richard Rosen, a partner at Arnold & Porter in Washington. AT&T Wireless is using Ilene Gotts, a partner at Wachtell, Lipton, Rosen & Katz. Several experts expect Cingular to argue that a recent FCC rule permitting consumers to retain their phone numbers when switching wireless providers has essentially eliminated the need for local-market analyses. That’s because it is now much easier for competitors to enter the wireless telecom sector. But such an argument may be a stretch. In a December speech, assistant attorney general R. Hewitt Pate appeared unwilling to accept the contention that local number portability meant regulators should define a national wireless market. He noted that parts of the country are not served by the six national players. He also said the competitive power of the six varies. For instance, Verizon Wireless is strongest on the East Coast, the traditional area its Baby Bell parent serves. Pate said the antitrust division must decide whether to segment the market to distinguish the needs of businesses that want national coverage from subscribers who only use phones locally. Antitrust enforcers also must determine if separate markets exists for the provision of so-called 3G services, such as wireless data transmission. Such services are not offered in all markets by all players. Adoption of any of these narrower market definitions, though unlikely, could complicate the antitrust review. Cingular appears prepared to support its national market definition approach by justifying the deal on the basis of its enormous potential efficiencies. Antitrust theory holds that even anticompetitive deals merit approval if the efficiencies are great enough. In two conference calls Tuesday, Sigman predicted $1 billion of cost savings in 2006 and $2 billion in savings for every subsequent year. Such savings would come by eliminating duplicative market efforts, consolidating transmission facilities and adopting a single platform for customer billing. “It offers sizable synergy opportunities — opportunities that are realistic and achievable,” he said. If the Justice Department concludes these cost savings are likely and are only possible with a merger, then it would increase the chances that Cingular could pull off the deal without divestitures. That such a transaction is even possible is only because the FCC in November 2001 began phasing out restrictions on the amount of spectrum a single company may own in an urban market. Kelly Cameron, a partner at Powell, Goldstein, Frazer & Murphy in Washington, said the old ownership limit would have forced Cingular to divest assets in lucrative markets such as Los Angeles and San Francisco, where both companies offer mobile telecom services. Such significant divestitures could have prevented Cingular from offering such a high premium for AT&T Wireless, which means Vodaphone probably would have emerged with the company. While the urban limits are gone, FCC spokeswoman Lauren Patrich said the agency still bars two cellular carriers from combining in many rural markets. She said that means Cingular-AT&T Wireless either could be required to divest some assets in rural areas or it would have to seek a waiver from the regulation. Cingular officials said they expect to complete the deal in the fourth quarter. But telecom observers said that could be optimistic, noting that the FCC may require a year to 18 months to complete the review. While the Cingular deal involves well-established application of merger law, a combination with Vodaphone could raise novel policy questions. As a British company, Vodaphone’s acquisitions in the United States are subject to a separate national security review. The Committee for Foreign Investment in the United States, an interagency task force led by the Treasury secretary, handles such investigations. CFIUS includes representatives from the Department of Homeland Security, FBI, Department of Defense and the Commerce Department. Since Sept. 11, 2001, CFIUS has been unusually active in reviewing acquisitions of U.S. telecommunications companies by foreign firms, including those based in friendly countries. The worry is that the foreign company could gain first-hand knowledge of U.S. efforts to monitor communications of suspected terrorists and criminals. That information could be passed on to the foreign governments. To guard against this threat, foreign companies have been forced to insulate themselves from the U.S. operations by creating a board of U.S. citizens responsible for handling intelligence requests by law enforcement. But even this strategy does not always work, and when it does it can take a very long time. Singapore Technologies Telemedia Pte and Hutchison Whampoa Ltd. in August 2002 agreed to buy Global Crossing Ltd. CFIUS spent 14 months reviewing the merger and ended up letting STT do the deal after the company agreed to impose security safeguards, but it essentially barred Hutchison Whampoa’s involvement. Also, the secret nature of the proceedings and the evolving nature of CFIUS worries make it very difficult to handicap this risk or predict the length of such a review. Ron Orol contributed to this report. Copyright �2004 TDD, LLC. All rights reserved.

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