2. YELLOWMAGENTACYANBLACK
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A6 ★★ SEATTLE POST-INTELLIGENCER ❘ TUESDAY, SEPTEMBER 21, 2004
THE FALL OF AT&T WIRELESS
“When wireless portability came
along, it became clear AT&T Wireless
was losing, so they put themselves up
for sale,” said Derek Kerton, principal
analyst with wireless-consultancy The
Kerton Group.
Ontotheauctionblockthecompany
went, selling itself to the highest bidder.
Atlanta-based Cingular Wireless agreed
to pay $41 billion in the largest cash
takeover in U.S. history.
The deal, which could close as early
as next month, likely will be followed by
massive layoffs among the company’s
more than 31,000 employees – 5,700 of
whom live in the Puget Sound region.
The takeover is good news for those
shareholderswhoreceiveapremiumon
a historically anemic stock. But it means
Seattle will say goodbye to yet another
major corporation – one that began as
McCaw Cellular Communications, a
storied local company that has generat-
ed some of the region’s most influential
and innovative business leaders.
Its trajectory could have been very
different.
Ten years before, the tiny cellular di-
vision at telecommunications giant
AT&T Corp., based in New Jersey, got a
kick-start of 2 million subscribers when
it bought McCaw Cellular for $11.5 bil-
lion.
Anxiety mixed with excitement
among McCaw staffers, who feared los-
ing the spirit of their entrepreneurial or-
ganization but believed that taking on
the AT&T brand, experience and war
chest would propel the small company
intoonethatcoulddominateinthenew,
evolving market.
“When we came over (to AT&T), we
felt we were hooking ourselves to a
star,” said former McCaw Cellular
spokesman Bob Ratliffe.
At first, it seemed that combining
the companies had indeed created a
winner. By the end of1997, AT&T Wire-
less had become by far the nation’s larg-
est cellular provider. It led the industry,
creating the first national coverage plan
with no roaming or long-distance fees.
The company received numerous
awards for excellent service, and by
2000 several publications, including
Forbes and PC Magazine, had named it
the country’s best wireless network.
But soon after that, even with the $7
billion it retained from its initial public
stock offering, AT&T Wireless started
losing out to its competitors – compa-
nies that hadn’t even existed a year ear-
lier. Those rivals came into existence
only after AT&T Wireless showed that
offering national coverage was techno-
logically and economically feasible.
The customer service and compre-
hensive coverage that had distin-
guished AT&T Wireless began to deterio-
rate, while the company’s competitors
improved both of those critical facets.
The final blow came late last year, with
the FCC’s ruling implementing local
number portability. Customers defected,
the company was put up for sale, and the
fate of AT&T Wireless was placed in the
hands of the highest bidder.
On Feb. 18 at 2:30 a.m., AT&T Wire-
less Chief Executive John Zeglis shook
hands with top Cingular executives on
the $41 billion deal.
“I’m feeling good!” Zeglis exclaimed
later that morning. “We are doing right
by the three legs of the stool we sit on:
our shareholders, customers and em-
ployees.”
Certainly some employees will bene-
fit from the deal. Foremost among them
may be Zeglis himself. He will get $21.7
million. A total of more than $86 million
will be split among AT&T Wireless exec-
utives and directors.
But customers, former employees
and angry workers, who now face the
possibility of losing their jobs, wonder
why it had to end this way. Could AT&T
Wireless have been where Verizon is
now? Or could it have been as big as No.
2 Cingular, poised to buy another, small-
er cellular carrier?
Why did AT&T Wireless go from in-
dustry leader to indus-
try loser?
The McCaw roots
When AT&T Corp.
bought Craig McCaw’s
cellular company in
1994, that flourishing
startup formed the
backbone of AT&T
Corp.’s wireless divi-
sion. It was an “amaz-
ingly strong culture,”
running lean, keeping
things simple and
stressing customer ser-
vice above all, said Bob
Ratliffe, one of more
than 50 people inter-
viewed for this story.
Cath Washburn, for-
mer McCaw senior vice president of hu-
man relations, recalled, “It had so many
good things going for it. So many good
people, who just worked their butts off
for the company.”
After the purchase, workers there re-
mained optimistic for several years.
When the acquisition became final,
AT&T Corp. management allowed Jim
Barksdale, who was running McCaw
when it was acquired, to remain at the
helm of the new division.
McCaw employees were initially re-
luctant to embrace the AT&T Wireless
name, out of pride in their own company,
recalled Steve Hooper, another McCaw
staffer who served as chief executive of
AT&T Wireless. But “when each market
rolled over its name to AT&T Wireless,
we did it with classic McCaw support and
enthusiasm. So when I left, people had
embraced the name, loved the name,” he
said.
But there were strong cultural differ-
ences between the two companies. AT&T
Corp. was a highly regulated business, a
former monopoly, and strongly hierar-
chical in structure. McCaw was an up-
start and was free form, if not nearly an-
archic.
WhenAT&TCorp.broughtinthefirst
AT&T “corporate man,” Dan Hesse, to
lead the wireless company in May 1997,
leery McCaw employees thought the end
had come.
“Everyone was worried about him,
because he came from AT&T,” recalled
Washburn. “But he did his best to keep
the culture and the environment going.”
By the end of 1997, AT&T Wireless
had become the nation’s largest cellular
provider. Under Hesse’s watch, AT&T
Wireless lost its subscriber lead. By other
measures, though, the company re-
mained a leader. It was profitable, and its
revenue growth outstripped that of its
largest competitors.
AT&T Wireless was
especially popular
among businesses. That
lucrative niche was de-
veloped mainly through
the creation, in May
1998, of the Digital One
Rate by Hesse and his
staff. It was the first plan
offering national cover-
age with no roaming or
long-distance fees. A na-
tional network itself was
still a novelty, much less
one with such a simple,
economical fee struc-
ture. Companies loved
it.
“It caused the rest of
the industry to follow
suit,” said Verizon Chief
Executive Denny Strigl. “It wasn’t long
after that Verizon Wireless adopted what
we called our single-rate plan.”
The big challenge
In 1999 and 2000, the cellular indus-
try began to consolidate, presenting
AT&T Wireless with its biggest compet-
itive challenge yet. Companies merged.
Then the merged companies merged.
The new mega-companies bought or
built their own national networks, ac-
quiring subscriber numbers in the dou-
ble-digit millions.
From those mergers in April 1999
came Cingular Wireless, which assumed
the No. 2 position that year. Then in July
2000, Verizon Wireless was formed, in-
stantly becoming the nation’s largest car-
rier.
Acquisitions help cellular companies
attract new subscribers by expanding
and strengthening their coverage. AT&T
Wireless never made such major acquisi-
tions, resulting in network coverage infe-
rior to that of its closest rivals. By the end
of 2000, AT&T Wireless had become the
nation’s No. 3 carrier.
Enter Zeglis
In October 1999, as AT&T Wireless
was losing ground, John Zeglis arrived as
its chief executive. The vibrant organiza-
tion that Hesse had found when he ar-
rived changed dramatically during the
tenure of Zeglis, who declined to be in-
terviewed for this story.
A Harvard Law School graduate who
had served as AT&T Corp.’s general
counsel before becoming its president,
Zeglis had little exposure to business out-
side AT&T Corp.’s headquarters. The
company had hired him in the late1970s
from prestigious law firm Sidley & Aus-
tin,wherehehadservedasgeneralcoun-
sel.
“I think the selection of the CEO had
some people scratching their heads, be-
cause he was an attorney as opposed to a
seasoned executive,” recalled Sam Ginn,
former chief executive of AirTouch Cellu-
lar Inc.
Nor did Zeglis seem interested in
learning the industry or the company by
immersing himself in either, said several
former executives, who asked not to be
identified because they’re still employed
by the company or active in the industry.
Despite promises to do so – made in front
of employees at a general meeting – Ze-
glis and many other key executives have
never moved from New Jersey, instead
continuing to run the company from
there.
“When they were asked by employ-
ees why they weren’t moving, their an-
swer was that it would be easier to work
with Wall Street and the national media
if they stayed in New Jersey,” said a for-
mer senior staffer who spent more than
13 years at the company. “Well, what do
Microsoft and Starbucks do? That didn’t
help employee morale.”
AT&T Wireless spokesman David
Caouette said Zeglis maintains a town-
house in Kirkland and spends two-thirds
of his time there.
Zeglis surrounded himself by “cro-
nies” – a word used by two former senior
executives – who insulated him from
knowledgeable McCaw workers, and he
created layers of bureaucracy.
“He brought his secretary, and his
secretary had a secretary,” said a former
senior executive. “He brought this huge
staff of people that were his handlers.”
Caouette denied that assertion.
A change in culture
As the freewheeling McCaw culture
yielded to bureaucracy, communication
among employees faltered.
“With AT&T folks, simplicity went
out the window,” said the former senior
staffer who spent more than 13 years at
the company. “Every six months there
were updates to the strategic initiatives
coming from Zeglis. And they flip-
flopped: first, ‘Add new customers;’ then,
‘Focus on keeping existing customers.’
When 30,000 (employ-
ees) across the country
feel they’re getting a
new message so often,
it’s hard.”
McCaw had been an
open, convivial envi-
ronment, where man-
agement decisions were
loudly debated and
evenhigh-rankingexec-
utives could be told
their ideas were off
base. In contrast, the
company under Zeglis
discouraged open dis-
cussion, said a former
executive with more
than five years at the
company.
“Those who re-
mained, who had the
experience, found
themselves in a situation where it wasn’t
politically correct to necessarily say what
needed to be said,” she recalled.
McCaw veterans said Zeglis’ hires
grated on McCaw staffers – and vice-ver-
sa. Many McCaw employees came to feel
isolated and marginalized.
“(Employees) told me a number of
times that they felt like they were walk-
ing around with a big target painted on
them,” the former senior executive said.
The new regime had different spend-
ing habits, several executives said. More
went to executive salaries, support staff,
buildings in New York and New Jersey
and corporate jets.
For example, in contrast to McCaw’s
leanstyle,Zeglisupgradedfromthecom-
pany’s Falcon 50 jet to a bigger Gulf-
stream jet for commuting – then put mil-
lions of dollars more into a new interior
for it. He later bought another, even larg-
er Gulfstream.
Less money than in the past went to-
ward maintaining and improving the
quality of the wireless network and the
customer-care division – the two aspects
of a cellular company that most directly
affect customers.
“The network was the No. 1 reason
that tanked the company – especially
problems on the East Coast and in the
Northeast,” said the former senior staffer
whospentmorethan13yearsatthecom-
pany.
Executive exodus
Before long, executives began to
leave en masse. Hesse quit a couple of
months after Zeglis arrived. So did a
number of key McCaw folks – so many, in
fact, that several people referred to the
departures as a brain drain. Within 18
months, all six McCaw regional presi-
dents had left.
The heads of the
companies that were
rapidly gaining on
AT&T Wireless – Cingu-
lar’s Stan Sigman and
Verizon’s Denny Strigl –
“had a lot of history in
the (cellular) business,”
said former Chief Exec-
utive Steve Hooper. In
contrast, “the team at
AT&T Wireless after
Dan Hesse left didn’t.
To kind of just fly into it
from some other area of
telecommunications is
just a real challenge.”
In April 2000,
through the largest IPO
until then, AT&T Wire-
less became a separate-
ly traded entity, al-
though it remained a division of parent
company AT&T Corp. The division’s fu-
ture was thought to be so bright that only
freeing its share price from that of its
stodgy parent company would let AT&T
Wireless achieve its full value.
With both investors and employees
clamoring for a share, the offering raised
$10.6 billion, of which the wireless divi-
sion kept $7 billion.
In early May, the stock hit its all-time
high of $35.25. Almost immediately it
began to decline, as did the shares of all
the cellular carriers during the tech bust
that began in the spring of 2000.
In July 2001, AT&T Wireless became
a separate company, no longer a division
of AT&T Corp. But shares continued to
sink steadily during the next three years,
climbingintothelowteensonlywhenru-
mors of a buyout began swirling early
this year.
GSM NetworkCDMA Network GSM Network
TDMA Network
3.391.330.76
The once-dynamic cellular carrier – the
nation’s most popular through 1999 – slipped
to third place and has remained there through
a combination of poor technology choice,
customer-service snafus and failure to
consolidate. Its declining stature made it a
tempting takeover target, valuable for its
network and spectrum licenses.
CUSTOMERS ENDING SERVICE PERCENT OF TOTAL CUSTOMERS ENDING CELL SERVICE EACH QUARTER, 2002-PRESENT
CUSTOMER COMPLAINTS
VERIZON CINGULAR
AT&T WIRELESS
CURRENT MARKET SHARE SHARE OF THE CELLULAR MARKET AS OF JUNE 30
NETWORK COVERAGE
NETWORK COVERAGE
PER 10,000 SUBSCRIBERS, 2003
12.8%14.7%23.8%
HOW AT&T WIRELESS GOT DISCONNECTED
Verizon Wireless built its network based on CDMA, a
largely untested technology that proved capable of
expanding to accommodate both digital data and
many new subscribers.
AT&T Wireless inherited a TDMA network from McCaw
Cellular, then focused its energy on building it up rather
than switching to a newer technology. In late 2000,
when it did begin building its GSM network, it used a
single frequency with limited range and penetrating
power. By year’s end, more than half the company’s
customers will be using GSM, the company says.
Cingular Wireless began life with networks using both
TDMA and GSM. In late 2001, it decided to move to
100 percent GSM, using two different frequencies.
About 35 percent of its subscribers still use TDMA,
and the company continues to maintain that network.
1
1.5
2
2.5
3
3.5
4%
‘02 ‘03 ‘04
3.4%
2.6%
1
1.5
2
2.5
3
3.5
4%
‘02 ‘03 ‘04
2.7%
2.9%
1
1.5
2
2.5
3
3.5
4%
‘02 ‘03 ‘04
1.5%
2.0%
Service area Service area
Service area
TECHNOLOGY OPTIONS
CDMA (Code Division Multiple Access)
GSM (Global System for Mobile Communications)
◗ Both networks have voice, high-speed Internet,
text messaging and e-mail capabilities
TDMA (Time Division Multiple Access)
◗ Voice and text messaging capabilities
Older technology
Newer technology
Sources:TheYankee Group,The Associated Press, company reports JEN MYSTKOWSKI/SEATTLE POST-INTELLIGENCER
CHOICES
“SPRINT AND
VERIZON . . . WERE
MOVING TOWARD
THE FUTURE,
WHEREAS AT&T
WIRELESS WAS BUSY
IMPLEMENTING
THE PAST.”
– Michael Dellomo, University
of Maryland
CUSTOMERS
“THE LINE FROM
THE COMPANY WAS
THAT WE LOST
THOSE PEOPLE OUT
OF BAD LUCK. BUT
THEY WALKED
AWAY FLIPPING US
THE BIRD.”
– A regional sales manager
CELLULAR:
Onto the
auction
block
FROM A1
CONTINUED ON NEXT PAGE
3. YELLOWMAGENTACYANBLACK
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SEATTLE POST-INTELLIGENCER ❘ TUESDAY, SEPTEMBER 21, 2004 ★★ A7
THE FALL OF AT&T WIRELESS
An unfortunate choice
One origin of the decline may have
been a moment soon after AT&T Corp.
bought McCaw, when it made a conser-
vative technology choice that would
prove disastrous because it left no room
for long-term growth.
McCaw for some time had been lead-
ing the transition from older, analog
technology to a more efficient, digital
system. It chose the most widely accept-
ed of the rival digital standards emerging
in the late 1980s, dubbed TDMA.
When AT&T Wireless bought McCaw,
it had to choose between embracing
McCaw’s choice or tearing that out and
rebuilding with one of two more ad-
vanced, more capable technologies,
known as CDMA and GSM. The first of
those was still unproven, while the other
was virtually unknown in the United
States but ubiquitous in Europe.
If AT&T Wireless had chosen either of
those new technologies, it could have
sidestepped the costly, difficult change-
over required a few years ago as it started
outgrowing its old network. But it didn’t.
Choosing to continue with its old net-
work was perhaps foreseeable for the
conservative management at AT&T
Corp. Changes the company made to its
old network did improve its voice quality.
But as events proved, retaining that net-
work was a wrong choice, and one that
cost it dearly.
“Sprint and Verizon went with this
wild . . . technology, which no one knew
whether it would work right,” said Mi-
chael Dellomo, a lecturer in telecom-
munications at the University of Mary-
land. “Sprint went crazy with it – it just
didn’t work (at first). But they were mov-
ing toward the future, whereas AT&T
Wireless was busy implementing the
past.”
Former McCaw and AT&T Wireless
technology chief Nick Kauser agreed.
“Did we make the wrong technology
choice?” he asked rhetorically. “I feel re-
sponsible that we probably did.”
Later, cellular carriers tried to sell
more airtime by moving customers to
phones capable of text messaging, taking
and sending photographs and accessing
the Internet. AT&T Wireless’s network
lacked most of those capabilities. That
meant the company by late 2000 was
forced to move to one of the new technol-
ogies.
“That (distraction)
hurt AT&T Wireless
badly, while Verizon
was very successful in
establishing the net-
work-superiority mes-
sage,” said Mark Lo-
wenstein, managing di-
rector of consultancy
Mobile Ecosystems.
“AT&T Wireless had
about 40 percent of the
corporate market, and
they allowed Verizon to
take their network story
away.”
AT&T Wireless end-
edupchoosingthetech-
nology ubiquitous in
Europe. The change required enormous
expenditures of time, energy and money
to create a second nationwide network.
Meanwhile, its competitors were free to
improve existing networks and expand
service offerings.
As a result, AT&T Wireless fell be-
hind.
The company’s difficult move from
one technology to the other caused prob-
lems with dropped calls, interference
anddifficultiesconnecting,saidHerschel
Shosteck, president of telecommunica-
tions consultancy The Shosteck Group.
Moreover, AT&T Wireless “never,
never acknowledged to us that there
were problems,” he said. “And any com-
pany that doesn’t acknowledge it has
problems when they’re there – we think
it’s in a dangerous position.”
Cingular initially chose the same
technology that AT&T Wireless had in-
herited from McCaw. But when it moved
to the same newer technology AT&T
Wireless had chosen, it dealt with the
transition faster and more effectively.
Cingularalsochoseafrequencythatgave
its signals better range and let them pen-
etrate buildings better than AT&T Wire-
less’s, said Ira Brodsky, president of tech-
nology analysts Datacomm Research Co.
Marketing and spending gaffes
Even when AT&T Wireless gained a
technological edge, it sometimes failed
to capitalize on that advantage. A long
string of marketing mistakes resulted
from management’s lack of vision.
In the mid-1990s, the Redmond com-
pany had been the only cellular carrier
with anything close to a nationwide net-
work. Though it was partly analog and
partly digital, handsets were available to
accommodate that duality, said analyst
Michael Dellomo. But the company
failed at the time to market its industry-
leading coverage.
“Why didn’t AT&T Wireless jump on
it?” he asked. “They could have made a
real case for saying they offered true na-
tionwide coverage. It was all their net-
work. They wouldn’t
even have had to
charge for roaming.”
Later, when the
company pioneered
Digital One Rate, that
program gave it a
strong advantage over
its competitors. But
within a year or two, its
ad campaign for that
program seemed to
fade away, Lowenstein
said. And as the brand
faded, similar offerings
appeared from compet-
itors. Before long, na-
tional calling plans
were nothing special.
AT&T Wireless
branded its e-mail and Web access ser-
vices with the “mMode” label, a name
that baffled some people, said “Mobile
PC” magazine editor Robert Strohmeyer.
Last year the company introduced
“mLife” to advertise its data services, a
word that meant nothing to many con-
sumers. Then, the company in July
launched its latest wireless data service –
one of three it now offers – under the
name UMTS, which no one could find
memorable. It has made no effort to dis-
tinguish that from GPRS or EDGE, its two
earlier wireless efforts.
“I think they have had too many
brands,” said Bo Hedfors, a 36-year vet-
eran of the cellular industry who once
served as chief executive of handset-
maker Ericsson Inc. “How they posi-
tioned themselves, it was at times some-
what confusing.”
No help from Ma
When AT&T Corp. bought McCaw,
workers at the smaller company were ex-
cited at the prospect of having access to
their new owner’s war chest to fund ex-
pansion. Ironically, though, it was AT&T
Corp. that had its hand out.
Under the leadership of C. Michael
Armstrong, AT&T Corp. in 1999 charged
into the market for cable companies,
spending billions of dollars buying TCI
and MediaOne.
Unfortunately for AT&T Wireless, its
parent company went so far as to sell off
AT&T Wireless’s spectrum licenses to buy
cable companies, said former CIO Nick
Kauser. A spectrum license is the right to
use a given frequency in a certain geo-
graphical area.
Then, when Digital One Rate suc-
ceeded so wildly, AT&T Wireless was
forced to buy back the same licenses it
had just sold.
“At the time, AT&T Corp. had a
strong balance sheet,” Kauser said. “If it
had gone on an acquisition binge instead
of divesting (cellular) properties, AT&T
Wireless could very well be the No.1car-
rier today.”
Issues with quality
AT&T Wireless hoped that the move
to a new network would improve its rep-
utation for substandard network quality
and customer service. But the move just
added fuel to the fire.
In late 2003, the company tried to in-
stall new software for signing up and co-
ordinating customers using its new net-
work. According to many employee ac-
counts, that software was so complex to
implement that it took months. Those
employees said the implementation
should never have been commenced so
close to the Federal Communications
Commission’s November deadline for
implementing local-number portability.
The software was so crippled that it
kept thousands of would-be customers
from signing up with AT&T Wireless and
prevented thousands more from making
changes to their accounts. Fixing it took
months.
Right on the heels of that foul-up, the
company botched its implementation of
local-number portability. Late last year,
AT&T Wireless delayed about 60 percent
of customers who were trying to leave it
whilekeepingtheirphonenumbers.That
delay prompted the FCC to request an ex-
planation.
Customer service representatives
werefloodedwithcomplaintsaboutboth
problems and had no way to help callers.
“The mood here is bad and getting
worse all the time,” said one representa-
tive at the time. “(The problems) were
both pretty disastrous. You have lots of
people complaining to you, including my
own father, who’d been a customer since
1996. It was a very, very hard time, and
no one could explain why they were hav-
ing those problems.”
As a result, the company’s reputation
continued to decline.
AT&T Wireless faced a public rela-
tions nightmare. Customers who desper-
ately wanted to leave couldn’t do so be-
cause of problems in the very customer
service they were trying to flee.
Potential customers couldn’t sign up,
either. For months, when clerks at retail
outlets couldn’t activate new AT&T Wire-
less accounts, they simply steered cus-
tomers to other carriers.
By the time the number portability
debacle had abated, there was no illusion
anymore. AT&T Wireless was on the
ropes.
Number portability was “the turning
point that made them a purchasee rather
than a purchaser,” said Derek Kerton,
principal analyst with wireless-consul-
tancy The Kerton Group. “I think it was
bad management. . . . Combine that with
bad luck, and you end up where you are.”
‘A positive exit strategy’
As early as 2003, suspicions arose
within AT&T Wireless that management
might be preparing the company to be
sold, according to some former workers.
“I started to hear this (rumor) when
the leadership started to give ambiguous
comments like, ‘We’re always consider-
ing any opportunities that make sense for
thebusiness,’saidaformermanagerwho
put in 10 years at the company. “Before
that, it had been, ‘We’re growing, we will
stay together.’ ”
In discussing the company’s attitude
toward acquisitions, AT&T Wireless ex-
ecutives seemed almost ambivalent. The
company was “always looking at possible
mergers or acquisitions as a way for us to
grow,” said Lew Chakrin, AT&T Wire-
less’s strategy chief.
But growth was always just one of
several possibilities, said data division
head Andre Dahan.
“We have at different times looked at
growth versus acquisi-
tion versus an exit strat-
egy like being ac-
quired,” he said. “We
decidedtoparticipatein
this way (selling to Cin-
gular), and I think it’s
absolutely a positive ex-
it strategy.”
Cingular has a very
different philosophy. It
has been consistently
aggressive in its growth.
BellSouth, which
owns 40 percent of Cin-
gular, once came close
tobuyingAT&TCorp.it-
self. Edward Whitacre
Jr., chairman and chief
executive of SBC Com-
munications – which
owns the other 60 percent of Cingular –
has a reputation as a fearsome acquirer
of companies.
CingularwillbuyAT&TWireless,and
not vice-versa, because “Cingular was
the most aggressive,” said Bo Hedfors,
the former Ericsson CEO. “It has to do
with its financial situation and also with
leadership – who was most aggressive?”
In a weakened state at the end of
2003, AT&T Wireless found itself being
circled by three large companies, all of
them in a buying mood.
NTT DoCoMo Inc., Vodafone and
Cingular “started to converge on us as a
very attractive target,” Chakrin said. “We
were the only (wireless-only) company
that’s publicly traded, and so we were ac-
quirable.”
On Jan. 22, after reporting the slow-
est growth of any U.S. cellular company
and a loss for the quarter, AT&T Wireless
officially put itself up for sale. On Feb.18,
Cingular agreed to buy AT&T Wireless
for nearly $41 billion.
The movie ends
In selling, AT&T Wireless will do well
by its shareholders. They’ll get a 27 per-
cent premium on their stock. But the
company could have driven up share
prices by superb execution, or by making
acquisitions, rather than by selling.
Customers may eventually benefit
from an expanded network and better
coverage – but not, experts predict, be-
fore going through a painful period while
the companies integrate their opera-
tions.
As for AT&T Wireless’s employees,
things likely won’t work out so well. The
merger will create thousands of redun-
dant positions.
While neither company will discuss
impending layoffs because the deal
hasn’tyetbeenfinalized,typicallyitisthe
seller whose employees see the majority
of pink slips. Experts predicted that
AT&T Wireless will bear the brunt of the
layoffs,thoughthecompaniessaidthey’ll
retain the best-qualified
employees at whichever
company they work.
Cingular has pledged no
layoffs will occur this
year.
Current employees
expressed anxiety over
the pending sale, and
even those who left the
company long ago ex-
pressed regret.
Former McCaw Cel-
lular executive Bill Mal-
loy remembered that
around 1992, when the
company got into the
discussions with AT&T
Corp. about some form
of cooperation, McCaw
employees’ excitement
at that prospect revolved around AT&T’s
“revered” brand.
“We just saw this great opportunity
that if you ever took on this brand of
AT&T and attached it to wireless, you’d
just live out the dream: to become abso-
lutely the wireless company that custom-
ers stayed with and trusted,” he said.
“So when you ask, are you disap-
pointed (with this outcome), well, abso-
lutely, you are, because I never wanted to
see AT&T Wireless go away. That’s just
not the way you would have wanted to
end the movie.”
GETTING BIG FASTER: HOW THE LARGEST CARRIERS GREW
Verizon and Cingular were created in 2000 by the merger of other cellular companies. Both of those upstarts immediately became larger than AT&T Wireless, which had been the nation’s most
popular carrier. The Redmond-based company, six years older than Verizon and Cingular, didn’t enlarge its subscriber base that way, though it did acquire some subscribers through purchases.
VODAFONE
AIRTOUCH
GTEBELL
ATLANTIC
‘97 ‘98 ‘99 ‘97 ‘98 ‘99 ‘97 ‘98 ‘99 ‘94
SBC BELL
SOUTH
‘97 ‘98 ‘99 ‘97 ‘98 ‘99
McCAW
CELLULAR
‘00 ‘01 ‘02 ‘03 ‘04*
AT&T Corp. bought Kirkland-based McCaw Cellular Communications Inc. in 1994
for $11.5 billion, launching AT&T Wireless Services. Its purchase of several small
companies accounts for a
significant part of its
subscriber growth.
On an expansion binge, SBC Communications Inc. in 1997 bought Pacific
Telesis Group, then the next year bought Ameritech Corp. and Southern
New England Telecommunications
Corp. In 2000, SBC and BellSouth
Corp. formed a joint venture named
Cingular Wireless LLC, which
immediately became the nation’s
second-largest carrier.
In 1999, AirTouch Communications Inc. completed its merger with Vodafone Group Plc
and became a wholly owned subsidiary of Vodafone AirTouch Plc. Verizon Wireless LLC
was born the next year when Vodafone AirTouch
partnered with Bell Atlantic Corp. and GTE Corp.
Upon its creation, it was the nation’s most
popular carrier. It has grown dramatically since
then by attracting new subscribers.
0
10
20
30
40
50
0
10
20
30
40
50
0
10
20
30
40
50
25 MILLION
‘00 ‘01 ‘02 ‘03 ‘04* ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04*
21.7 MILLION
40.4 MILLION
VERIZON CINGULAR AT&T WIRELESS
* 2004 figures as of June 30.
Millions of subscribers Millions of subscribers Millions of subscribers
Source: Federal Communications Commission
TECHNOLOGY
“DID WE MAKE THE
WRONG
TECHNOLOGY
CHOICE? I FEEL
RESPONSIBLE THAT
WE PROBABLY DID.”
– Nick Kauser,
former AT&T Wireless CIO
A billionaire
resident of Hunts
Point who, with his
three brothers, built
McCaw Cellular
Communications
Inc. from a small
cable company into
the country's then-
largest cellular
network, going
public in 1987. He
made a fortune by
selling it to AT&T
Corp. in 1994.
◗ After leaving:
Founded and served
as CEO and
chairman of
satellite communi-
cations project
Teledesic.
◗ Currently:
CEO and chairman
of Kirkland-based
telecommunications
provider Clearwire
Inc., which he
created in June.
Chairman of
the board, CEO
and president
of AT&T
Wireless. He
has been CEO
since 1999
overlapping
briefly with
Hesse and
chairman and
president since
2001.
◗ Before now:
From 1997 to
1999, he was
president of
AT&T Corp.
From June to
November
1997, he served
as vice
chairman of
AT&T Corp. He
was an
attorney at
Sidley & Austin
before joining
AT&T Corp. in
1984 as a vice
president and
general
counsel.
Insiders said the culture at AT&T Wireless changed dramatically in 1999 as the freewheeling, outspoken environment of McCaw
Communications was overridden by the more conservative, bureaucratic leadership style of AT&T Corp.
McCAW INFLUENCE (1983-1997)
THE POWER PEOPLE
STEVE HOOPERJIM BARKSDALE
President and chief
operating officer of
McCaw Cellular from
1992 to Jan. 1995.
◗ After leaving: CEO of
Netscape Communications.
Founded The Barksdale
Group, a venture capital firm.
◗ Currently: President and CEO of Barksdale
Management Corp.
CEO of McCaw
Cellular from
January 1995
through May 1997.
◗ After leaving:
Co-CEO of Teledesic,
then chairman and
CEO of NextLink Communications.
◗ Currently: Partner with Bellevue-based
venture capital firm Ignition Partners.
JOHN
ZEGLIS
CRAIG McCAW
AT&T INFLUENCE (1997-PRESENT)
CEO of AT&T
Wireless from May
1997 through
March 2000, the
first of the
company's leaders
to come from AT&T
Corp.
◗ Currently: Chairman, president and
CEO of Redmond-based Terabeam
Corp. from 2000 through April 2004,
when that company merged with YDI
Wireless Inc. to form a company called
Terabeam Wireless. He remains on that
company's board.
DAN HESSE
ACQUISITIONS
“IF (AT&T CORP.)
HAD GONE ON AN
ACQUISITION BINGE
. . . AT&T WIRELESS
COULD VERY WELL
BE THE NO. 1
CARRIER TODAY.”
– Nick Kauser,
former AT&T Wireless CIO
P-I reporter Dan Richman can be reached at
206-448-8032 or danrichman@seattlepi.com
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