AT&T Wireless ( AWE) has slipped into reverse, but its investors are keeping their eyes on that $41 billion Cingular prize.
Shares of the Redmond, Wash., wireless-service provider actually rose 1% Tuesday after AT&T Wireless conceded it had lost 367,000 subscribers in the first quarter. The deeper-than-expected customer loss marks the first decline of its kind in the company's history. But if there were alarms on Wall Street about AT&T Wireless' deterioration, they were overcome by Cingular's assurance that it had expected lousy results from its merger partner. "The release indicates that management at AT&T Wireless is taking action to address the issues they are facing, but these results emphasize the importance of completing this deal as soon as possible," Cingular Chief Stan Sigman said in the company's earnings release. Investors sounded the same theme. "These were terrible numbers, bigger than anyone's expectations, but it doesn't matter," says one hedge fund manager who holds AT&T Wireless stock. "Cingular sees AT&T Wireless through a long-term strategic view." The manager refers to the wireless spectrum and network territory Cingular stands to acquire in the deal. The merger plans call for Cingular to buy AT&T Wireless for $15 a share in cash in a deal expected to close by year-end. On Tuesday, AT&T Wireless advanced 22 cents to $13.79. Still, even if Cingular doesn't publicly wince at AT&T Wireless' latest report, some question how patient the company will be if business doesn't stabilize. AT&T Wireless, the No. 3 player, has somehow managed to run its ship aground amid the fair winds and strong sailing enjoyed by the rest of the wireless sector. Analysts had expected a bad first quarter, with customer losses estimated to be somewhere between 50,000 to 200,000. But nearly all somehow underestimated the scope of AT&T Wireless users' dissatisfaction. For years, AT&T Wireless has been plagued by chronic network-reliability problems. The complaints earned it the poorest service-quality rating of its peer group. The morass deepened at the end of the year when software glitches hampered its network upgrade and database incompatibilities foiled handoff requests as customers tried to flee to other carriers.