Cingular Stronger, Less Tied to Regulatory Battles
Cingular’s very strong financial results for Q4 and annual 2006 indicate the wireless carrier’s strength as it adopts the AT&T brand under newly merged parents AT&T and BellSouth, analysts said. The company’s results and guidance show its relative independence from regulatory uncertainty, a trend apparent throughout the wireless industry, they said. Debates may occur at the margins of communications policy, industry figures said, but Cingular and other major wireless carries have most of what they want from regulators. The call was “the last wireless-only earnings call,” before all future results are rolled into a single AT&T, a spokesman said.
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Cingular has “succeeded in working the regulatory scene” in D.C. and is largely in the position it sought, said Stifel Nicholaus analyst Rebecca Arbogast. The carrier showed “strong metrics, and that combined with their strong structural position post-merger is reflected in their increase on the market,” and will be in a “very strong” position going forward. There’s even an outside chance that strength could draw the attention of regulators after all, “especially with the Democrats in Congress.”
The wireless industry is both largely unregulated and competitive, said Jupiter Research analyst Joe Laszlo, but he agreed the new conglomerate’s size could cause concern. Last year, when one wireless carrier raised rates on text messaging -- a service that “flies under the [regulatory] radar a bit” -- the other 3 soon raised their rates. It clearly wasn’t collusion, but it’s precisely the kind of market behavior that draws regulators’ attention, he said.
Don’t read too much into Cingular’s silence on regulatory issues, even if previous financial presentations have stressed them, Laszlo said: Wait until “Cingular gets absorbed back into the warm bosom of Ma Bell” before declaring it disinterested in the regulatory scene. It makes sense that Cingular say little now because they don’t want to contradict AT&T’s larger lobbying strategy, he said, noting how BellSouth is keeping mum with respect to IPTV rollout, technology and franchising issues, among other contentious, D.C.-related topics. That was obviously a result of the pending merger, he said, and had there not been a merger looming BellSouth would have had to take stronger positions.
Some wireless companies are “ticked” about overpaying into USF, but the soon-to-be AT&T Wireless won’t be griping about that, said analyst Donna Jaegers, pointing to a specific example of the company subordinating its interests to those of its Bell owners. In the meantime, she said, the carrier has “finished the hardest part of the integration… they've run good execution” on network and back-office integration. But one financial flag is the decrease in postpaid subscriber additions the company reported last quarter, she said. Prepaid and reseller additions were up, but that could be a sign that the company is approaching critical mass for its big money-maker and may have to consider a change in strategy.
There probably won’t be any major wireless policy battles in the near future, but some issues could gain surprising primacy, Arbogast said. While digital rights management has been mostly a tech issue, she said, don’t forget that wireless carriers “are just another distributor, another platform,” and could be swept into a potential legislative battle. Also, Arbogast said, AT&T’s net neutrality concession to the FCC had an interesting aspect -- inclusion of a neutrality agreement on fixed WiMAX service -- that “won’t affect the company that much from a realistic financial standpoint, but… did establish a precedent that could come into play later.”