EV-DO PRESSURE FROM VERIZON PROMPTS CINGULAR 3G MOVE

In separate moves last week, Cingular Wireless announced its first field trial of UMTS and High-Speed Downlink Packet Access technologies slated for this summer, and ended an ongoing network-sharing agreement with T-Mobile USA by selling $2.5 billion in network assets to the German-owned carrier.

The timing of the test plan for 3G mobile data technologies is curious, given that Cingular is just finishing its GPRS rollout in some markets and is still working on an EDGE upgrade that is expected to culminate by the end of this summer. The carrier also has much on its plate as it seeks regulatory approval for its pending $41 billion acquisition of AT&T Wireless.

However, Cingular President and CEO Stan Sigman, speaking at the Lehman Bros. Global Wireless Conference in New York City last week, hinted that an acceleration of the carrier's 3G plans was imminent and important, given the 3G progress of Cingular's largest competitor.

“Verizon Wireless' EV-DO announcement [a national roll-out of CDMA 1X EV-DO to begin this summer] is having some impact on our 3G decision the way the market drives a lot of behavior,” Sigman told the Lehman crowd. “UMTS would trump EV-DO because it's a voice and data solution.”

Sigman also said Cingular wouldn't be able to conduct a networkwide upgrade to UMTS without the spectrum it will gain through the pending AT&T Wireless deal.

For the upcoming UMTS/HSDPA trial, Cingular will use the 1.9 GHz spectrum band in its hometown Atlanta market. The trial will use new UMTS network equipment and HSDPA software from Lucent Technologies. The test initially will focus on internal corporate users running data and content over the network — with the HSDPA upgrade, data rates of up to 14.4 Mb/s could be achievable. Lucent noted in a statement that the network also could be in a position to provide voice-over-IP services in the future.

Regarding the asset sale to T-Mobile, the deal concludes the network-sharing joint venture the two carriers created three years ago as a way to help both enter new markets more quickly. The future of the agreement has been in question since Cingular agreed to acquire AT&T Wireless, which already operates in many of the markets the Cingular/T-Mobile venture had targeted.

T-Mobile will pay Cingular $2.5 billion in cash — less $200 million that it will take to wind down the cooperative venture — for networks assets in California and Nevada. The deal also calls for T-Mobile to acquire Cingular spectrum in California for an additional $180 million, and to exchange 10 MHz of its own spectrum in New York for another 10 MHz of Cingular's spectrum in California. T-Mobile also retains an option to acquire further Cingular spectrum in California over the next two years.

If T-Mobile seems preoccupied with California, that's because it's home to the carrier's fastest-growing markets in the nation.

T-Mobile USA President and CEO Robert Dotson, also speaking at last week's Lehman Bros. conference, said, “We see 20% of our future customer growth coming from California and Nevada. This deal gives us 100% of what had been shared networks in those states.”

T-Mobile and Cingular will continue to maintain a business relationship in the affected markets, but it will be more along the lines of wholesaler to reseller, with T-Mobile continuing to support Cingular customers until Cingular can move them to AT&T facilities. That won't happen until after the AT&T Wireless acquisition.

That migration could take up to four years and mean at least $1.2 billion in revenue over the next two years for T-Mobile, while also reducing T-Mobile's ongoing capex requirements, said Brian Kirkpatrick, executive vice president and chief financial officer of T-Mobile USA.