Cingular Raises Outlook 1 Year Early

WASHINGTON – Cingular Wireless (search), the largest U.S. wireless phone company, said on Wednesday it expects to report a profit and positive cash flow in 2005, one year earlier than planned, following its $41 billion purchase of AT&T Wireless Services Inc. (search)

Cingular, which is owned by SBC Communications Inc. (SBC) and BellSouth Corp. (BLS), expects cost savings of $2.4 billion to $2.9 billion by 2007, roughly double the forecast it gave in February, when it announced the acquisition.

Last month, Cingular executives said they would cut 7,000 jobs, or 10 percent of its work force, as part of the integration.

Cingular also forecast $6.8 billion to $7.2 billion in capital spending in 2005, up from about $6 billion this year, due to an expansion of its network in California and Nevada and an upgrade of its nationwide network to handle high-speed Internet services. The company said it expects capital spending to decline after 2005.

The purchase of AT&T Wireless vaulted Cingular past Verizon Wireless (VZ) as the largest U.S. cellphone service company, with 47 million customers.

Several analysts and industry experts have said the combined company might not hold its lead for long, as both Cingular and AT&T Wireless have suffered from high customer defections, also known as churn, this year.

But Cingular executives said sales during the fourth quarter have been strong, and that churn has been lower than expected.

"My clear expectations is that we will achieve steady, continuous improvements to reach industry-leading metrics including churn and margins by the end of 2007," Cingular President and Chief Executive Stan Sigman told analysts in a conference call.

SBC, the No. 2 U.S. telecommunications company which owns 60 percent of Cingular, said the deal would add to its earnings in 2006 excluding accounting costs, one year earlier than previous forecasts. It said the deal's net costs would reduce fourth-quarter earnings by 7 to 9 cents per share.

Cingular said the deal would reduce BellSouth's earnings by 11 cents a share in 2004 and 20 cents a share in 2005, but would add to earnings in 2007.

Shares of SBC rose 2.5 percent, or 64 cents, to $25.81, while shares of BellSouth rose 3.5 percent, or 94 cents, to $27.76, both in afternoon trading on the New York Stock Exchange.