AT&T Wireless (AWE), the U.S. mobile phone group up for sale, called a board meeting on Monday to consider recommending a takeover that could value the company at more than $38 billion, sources familiar with the talks said.

Cingular (search), the second-largest U.S. cell phone group, on Sunday raised its offer for its smaller rival to $38 billion, or $14 per share -- a 40 percent premium to its share price before the auction was called last month, another source close to talks said.

"They (Cingular) have bid $14 per share," the source said. "We believe Vodafone will at least meet it."

However, a third source familiar with talks said rival bidder Vodafone Group Plc (VOD), the British-based mobile phone giant, appeared to be leading the bidding as Europe's markets closed. The companies declined to comment and no further details were immediately available.

AT&T Wireless, which put itself up for sale on January 22 after a series of poor results, called for opening bids by last Friday. Industry sources said both Cingular and Vodafone bid roughly $35 billion on Friday, prompting AT&T Wireless's financial advisers, Merrill Lynch, to ask for higher offers.

The auction for the third-ranked U.S. mobile phone group signals the start of long-awaited mergers in the fiercely competitive U.S. mobile industry, in which six national brands and a handful of regional players are battling for market share.

Market concerns that Vodafone's Chief Executive Arun Sarin will trade in a lucrative 45-percent stake in U.S. market leader Verizon Wireless for a deal that is expected to dilute earnings drove shares in the world's largest mobile phone group 2.57 percent lower in London.

"We do see Vodafone as a serious bidder now, but we still see Cingular in the driving seat," said one analyst. "They have more shareholder support and stand to get more synergies." 

AT&T Wireless, which has debt of around $5.9 billion, has yet to confirm it received any offers by last Friday's 5 p.m. EST deadline, which gave it at least a three-day U.S. holiday weekend to evaluate offers.

Vodafone said last week that it was examining whether an offer would be in investor interests. Since Friday's deadline passed, the group has argued it makes little commercial sense to reveal whether it made any offer.

AT&T Wireless, which is 16 percent-owned by Japan's NTT DoCoMo (search), has set itself a deadline of February 29 for a final decision, although sources say pressure is rising for a quick deal and an announcement could come much earlier.

While some Vodafone investors remain unconvinced about the merits of a bold offer, a growing number are braced for Sarin to fight for an asset that would give the group long sought-for control of a company in the world's most powerful economy and take its brand across the Atlantic.

However, some analysts argue the bid would dilute earnings by 10-15 percent for around four years, that Vodafone has a poor record in running third-ranked operators in Japan and Australia and that giving up its Verizon Wireless stake in order to become a global brand smacks of ambition and empire-building.

"They (Vodafone) have a large, joint-position with the No. 1 company in the United States, so why pay up for the No. 3 and try to build up market share?" asked Kevin Lilley, a European equities fund manager at Royal London Asset Management.

"It does not make a great deal of sense to me and it will almost certainly be dilutive to earnings," he added.

However, sources close to Vodafone say the group, which has orchestrated some of the largest and most ambitious takeovers in corporate history, is sure it can convince investors of its strategy if it wins AT&T Wireless.

Cingular, meanwhile, is owned by cash-rich regional carriers SBC Communications Inc and BellSouth Corp, whose determination to enlarge their mobile phone arm is driven in part by flat or shrinking fixed-line businesses.

Cingular says it can cut costs by an annual $3.0 billion by reducing overlapping staff and assets and SBC said in January it might consider a wireless deal that hurt earnings.

In the meantime AT&T Wireless is losing both money and customers. The group reported a fourth-quarter loss and in January alone lost nearly four percent of its customers and saw its operating income fall more than 20 percent from a year ago, sources close to the situation have said.