Cingular Bucks Up Sagging AT&T Wireless

Technical problems hound the struggling No. 3 wireless carrier as it awaits a year-end buyout.
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When it comes to its $41 billion bid for stumbling AT&T Wireless (AWE) , Cingular won't take no for an answer.

Monday brought new rumblings of network problems at Redmond, Wash.-based AT&T Wireless, the nation's No. 3 wireless service provider. Reports of lost calls come on the heels of a

disastrous quarterly performance in which AT&T Wireless suffered massive customer defections.

But

just as it did just last month, Cingular shook off the naysayers to reaffirm its dedication to staying the course.

Speaking at an investment conference Monday in New York, Cingular CEO Stan Sigman said he sees nothing to prevent the merger from closing this year, according to a person who was on hand.

Company executives gave the latest vote of confidence during their prepared remarks at the Lehman Brothers Global Wireless conference. They reiterated their stance during a question-and-answer period soon after.

This is the second assurance Cingular has issued in two months, as investors continue to question the possible implications from AT&T Wireless' deteriorating business. And as before, the latest batch of trouble seems to stem from AT&T Wireless' balky network.

Apparently, as AT&T Wireless and Cingular have been increasing the amount of traffic they carry for one another through so-called roaming agreements, AT&T Wireless has had more difficulty than normal keeping calls connected, says an industry analyst who asked not to be named.

"They are throwing capacity at the problem as fast as they can, but it's pretty much crisis mode and costs are going up," says the analyst. This may spell bad news for the bottom line and cause AT&T Wireless to turn in an even worse quarterly performance than last time, says the analyst.

AT&T Wireless disputes the claims and says that if anything, customers are seeing improvements as the company expands roaming ties with Cingular and makes its own network upgrades.

Though the wireless sector has been charging ahead with robust growth, AT&T Wireless has pulled up lame. The nation's worst-rated cellphone service lived up to its billing as it bungled network upgrades and software conversions during the holiday season. And even after those troubles helped force the company to put itself up for sale, the news got only worse.

Bad service and new number portability rules caused 367,000 AT&T Wireless subscribers to take their business elsewhere in the first quarter -- even as the company was spending more on adding and keeping customers. And though the company said the exodus was slowing last month, analysts question whether the new troubles may threaten to throw the exit doors open wide again.

Last week, even namesake

AT&T

(T) - Get Report

took a shot at AT&T Wireless, by vowing to resell

Sprint's

(FON)

service under the coveted AT&T brand. AT&T and AT&T Wireless are completely separate companies, after AT&T spun off its former unit to shareholders three years ago.

Last month, AT&T Wireless suspended its work on a walkie-talkie service that could have helped it compete with fast-growing

Nextel's

(NXTL)

popular two-way radio feature.

Even though Cingular agreed to pay $15 a share for AT&T Wireless, shares of the company have traded in the $14 range, indicating that investors aren't 100% confident the deal will go through as priced and on time.

Still, few analysts believe the deal will be scuttled. Cingular, a wireless joint venture of

SBC

(SBC)

and

BellSouth

(BLS)

, represents one of the few growth businesses for the Bells and an antidote to the sliding performance in the core local phone market. With the addition of AT&T Wireless, Cingular would take the top wireless spot over from Verizon Wireless, a joint venture of

Verizon

(VZ) - Get Report

and

Vodafone

(VOD) - Get Report

.

SBC and BellSouth see wireless as the best route out of the wireline doldrums, so they'll likely stick with the plan no matter how hard AT&T Wireless makes it for them, one Wall Street analyst says.