AT&T Wireless Users Head for the Exits

The struggling service provider, due to merge with Cingular, sees a stunning 367,000 customers flee.
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The revolving doors are positively spinning at

AT&T Wireless



The struggling Redmond, Wash., cell-phone service provider said Tuesday that it lost 367,000 subscribers in the first quarter. The loss marks a rare instance of customer attrition in the fast-growing U.S. wireless business, and exceeds the estimates of even the most bearish observer of the nation's No. 3 service provider.

The stark setback will only add to

some investors' fears that the company's business is in a tailspin, potentially endangering its scheduled merger with No. 2 wireless service provider Cingular. Skeptics had estimated that AT&T Wireless would lose between 50,000 and 200,000 customers.

AT&T Wireless said the subscriber exodus reflected the first wave of local number portability and the impact of fourth-quarter systems problems. Indeed, the company hit a rough stretch toward the end of last year as its low service-quality rating and glitchy network upgrade helped usher users out the door in droves, just as the new number portability rules kicked in.

Meanwhile, Cingular -- a joint venture of local phone giants






-- added 554,000 subscribers and saw average monthly subscriber churn drop 10 basis points to 2.7%. In stark contrast with its partner-to-be, Cingular said it isn't being affected by local number portability.

For its part, Cingular stood behind the merger plans, which call for Cingular to buy AT&T Wireless for $15 a share in cash. "Coverage and scale are key, but sustained success in wireless comes from doing a great job on the fundamentals," Cingular chief Stan Sigman said. "And the fundamentals for our business are network performance and customer care. These are the execution areas where Cingular is intensely focused in 2004, as we move toward finalizing our acquisition of AT&T Wireless. And these are the areas where we intend to excel as we move our business forward."

Meanwhile, AT&T Wireless said it is seeing improving trends in its business, due to its efforts to fix its many problems. The company said it would issue its full first-quarter earnings on Friday morning.

On Tuesday, AT&T Wireless rose 14 cents to $13.71.

AT&T Wireless also posted flat first-quarter wireless services revenue of $3.75 billion. The company cited higher data and roaming revenues and increased regulatory fees, offset by holiday offers, customer-retention service credits and lower monthly plan revenue from customers.

The companies said the

Justice Department

asked for more information on their merger under antitrust statutes.