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The wireless squeeze: Job cuts, lost taxes could result from merger

By Tricia Duryee
Seattle Times Eastside business reporter

	GREG GILBERT / THE SEATTLE TIMES The AT&T Wireless store at Redmond Town Center is next to the corporate headquarters. Once the company merges with Cingular Wireless, how many employees and stores will remain is still unknown.
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The likely economic impact of AT&T Wireless' acquisition by Cingular Wireless remains unclear, but local businesses and government officials are at least thinking about worst-case scenarios, especially as it applies to jobs.

"When you have mergers like this, there usually is some consolidation of employment because you have more than one person doing the same job," said Dick Conway, a regional economist, "and I think in this case, we are going to be the losers."

For the region's fragile economy, the $41 billion deal, which still requires regulatory and shareholder approval, undoubtedly packs a wallop. Just as a recovery sets in, the region now faces the loss of headquarters status of a Fortune 500 company and a probable cutback in jobs as Atlanta-based Cingular consolidates two work forces and operations into one.

The layoffs will be nowhere near the scale of the aerospace industry. But the elimination of high-tech and high-paying jobs in the considerably smaller wireless sector will change the landscape nevertheless, officials say.

Redmond-based AT&T Wireless, with more than 5,700 employees in the state, has more than half of the wireless jobs in the Puget Sound area. While about 3,000 of these jobs are in Bothell, where a call center and their information-technology employees are housed, there are 2,350 at the Redmond headquarters. The remainder are spread across the state.

Neither company will say how many of those jobs will be axed, but the surprisingly high price of the deal — the largest ever involving a Northwest company — puts pressure on Cingular to run the combined company more efficiently, eliminating duplicate expenses and jobs.

Perhaps as significant, the move of a large company's headquarters to another state — Cingular has already said it will maintain its Atlanta base — is as big a blow to the area's ego as it is to its wallets, said Roberta Pauer, a regional economist for the Washington state Employment Security Department.

"It's not the demise of the industry," she said. "When it's a headquarters, it feels worse. It feels good to have a headquarters here."

What's more, it's the headquarters of what used to be McCaw Cellular Communications, a company that started in the early '80s and helped to create the cellphone industry as we know it today.

A look at the numbers
 

To get a more tangible sense of the potential impact, take a closer look at the numbers.

AT&T Wireless' 5,700 employees make up more than half of the 10,600 wireless-industry jobs counted in the Puget Sound area in January. That may be a drop in the bucket — or a half of a percent — of the area's 1.14 million jobs, but they're generally well-paid jobs.

Wireless workers on average received $73,400 in pay in 2003, or more than any other type of worker in telecommunications industry in the Seattle metropolitan area.

At those wages, AT&T Wireless employees would have made roughly $418.4 million in 2003. That covers everyone from the sales people in the company's retail stores to high-level managers.

"That's right up there. Those are good family-wage jobs," said John Spangenberg, interim executive director at the Greater Redmond Chamber of Commerce.

By contrast, wired telephone workers made on average $59,800. Among all industries, workers in the Seattle metropolitan area made on average $47,700, about 65 percent of what wireless employees made.

Spangenberg said AT&T Wireless pay translates to a lot of shopping before or after work at Redmond Town Center, where the company's headquarters are located, and a lot of lunches or lattes at the nearby Starbucks and restaurants.

Snowball effect

Another way to look at things is the multiplier effect, or how many jobs are created by AT&T Wireless' presence.

Conway, the economist, said even if the number of jobs at AT&T Wireless are not huge, if they were eliminated now — "at a time when we are struggling to get back on our feet" — the area's economic slump will be prolonged.

He guesses that AT&T Wireless creates 1-1/2 jobs for every person it employs, meaning that it could be responsible for about 8,550 more jobs in the community.

As a frame of reference, Boeing creates 1.7 jobs for every employee; Microsoft is even higher, adding two jobs for each worker.

A more quantifiable number is the direct impact on the cities where employees are located. Both Bothell and Redmond charge a business license fee based on number of employees.

Called "a head tax," Redmond charges $67.50 a year for each employee, while Bothell collects $485 for 100 employees, and an additional $5 for each employee after that. The numbers are based on number of hours worked and the equivalent number of full-time employees.

In the worst scenario, losing all of AT&T Wireless' employees could mean a head-tax revenue loss (based on the most recent information) of about $149,000 for Redmond and $15,388 for Bothell.

The most vulnerable jobs

But the guess for now is that not all jobs will be cut. Instead, much of the concern lies on the company's information-technology workers in Bothell and some administrative and management positions in Redmond.

There also are possible trims to come in stores, where in some cases AT&T Wireless and Cingular locations are in the same shopping center. Cingular already employs 200 people in Washington state.

"It's the back-office management jobs that are most likely to be lost because Cingular is not going to want to have duplicative headquarters-types of functions in two states," Pauer said.

But she pointed out that the surviving operation still will need people who support and run the network day-to-day and who sell service and cellphones in the stores.

Many of the decisions probably won't materialize until the deal closes, expected by the end of the year. Even then, Conway said, it will take a while for the impact to sink in. The employees will have severance packages and unemployment checks to burn through.

Already decisions made before the acquisition to trim the work force have been delayed. AT&T Wireless did have a plan to eliminate as many as 2,700 jobs this year.

But on Friday, the company said it was re-evaluating those plans because of the merger, delaying any decisions that would have happened this year.

"Ultimately it will be Cingular's decision and its job to make that studied calculation and research into how we are structured," said AT&T Wireless spokesman Jeremy Pemble. "It is their decision to evaluate what is overlapped or not. ... It's way too early to state which ones might be impacted."

$1 billion to be saved

Cingular's Chief Operating Officer Ralph de la Vega did tip his hand on how much the company expects to save: $1 billion in 2005 as a result of the acquisition and $2 billion each year after that.

"First of all, I think there's a great deal of talent in both of these companies. Our commitment is to review the talent, and put the best talent to work for us," he said.

"The Redmond area is well known as a great source of innovation and creativity and entrepreneurism. We need that in a wireless company."

With AT&T Wireless' recognized expertise in creating new and innovative products, that could spell more jobs at the new Cingular.

De la Vega also said it will make sense to keep jobs in divisions that are taking off, such as data and data services.

"We will need more people, not less. It will depend on specific functions," de la Vega said.

Stable job totals

Pauer emphasized that the wireless industry on the whole is growing, albeit at a slow pace. While most industries during the recession over the past three years lost jobs in the Seattle metropolitan area, the wireless industry stayed relatively stable.

That compares with the whole telecom industry, which lost 3,900 jobs or 18 percent of its total in that time frame. Most of the job losses came from the wireline companies, she said.

"That is an astonishing achievement," she said. "Only a handful of industries in Puget Sound can say it has not declined in job totals. Wireless is one of them; they are a standout."

Kathy Wilcox, president and chief executive of WSA, the state's leading tech association, said she can't imagine Cingular cleaning out AT&T Wireless offices here, but even if it does, there still are about 50 wireless companies remaining.

"This region is one of the world's most concentrated sectors for wireless," she said. "It's going to continue to be so even though AT&T Wireless is going to be called Cingular."

Conway said that could be true, but without AT&T Wireless, there will be less reason for related businesses to locate here.

"At one point we were a center for wireless industry and the significance (of AT&T Wireless' leaving) is that we might be losing that," he said, explaining how companies in the same industry cluster together to benefit from each other.

"If you lose a key player in the industry, you might lose the advantages of that phenomenon."

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

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