Cingular Wireless LLC: Releases Benchmark Report

Esther Mui, Paul Holman / 416-593-5577 ext.2295 ext.2234 / e-mail: emui@dbrs.com

Cingular Wireless ("the Company"), created in October 2000 through the merger of SBC and BellSouth wireless operations, is the second largest wireless operator in the U.S. and also one of the strongest. The Company benefits from being the joint venture of two incumbent telephone companies, therefore, having strong brand and market share. During the first six months of the year, revenues increased 14%, reflecting the growing customer base. However, the EBITDA margin remained under pressure due to the challenging operating environment and the fiercely competitive nature of the industry. ARPU is down 4% this year to $51 and will likely continue to decline, as lower priced programs become a greater portion of the subscriber base.

Future challenges the company faces include:

The Company’s long-term debt of $11.6 billion, including inter-company debt of $9.4 billion, translates into leverage of 67%, which although high, is in the median range for a wireless company. However, future funding requirements could push this level up very quickly. The Company’s objective is to do an IPO for 10% to 15% of the enterprise value of the company, which it expects should net it $5 billion. This would cut long-term debt in half, and give it the capacity to undertake the capital expenditure it needs to stay competitive. The wireless industry has a high requirement for capital to keep up with changing technology. However, the business has become a commodity as price points for products continue to decline, and cost increases and competition intensifies, pushing down margins and challenging business models. Given these fundamentals, in the absence of an IPO, Cingular will require an additional capital injection from its parent companies to continue to maintain its current financial position.