NEW YORK (CNN/Money) -
Cingular Wireless said Tuesday it would buy AT&T Wireless Services Inc. for about $41 billion, topping a rival bid from Vodafone of Britain in a deal that would create the nation's biggest mobile phone company.
Cingular, currently the nation's No. 2 cellular service provider, is paying about a 27 percent premium to shareholders of AT&T Wireless, the nation's No. 3 wireless phone provider. Vodafone, which had recently raised its offer to $38 billion, dropped out of the bidding Tuesday.
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 Cingular has won AT&T Wireless for $41 billion, topping a rival bid from Britain's Vodafone. CNNfn's Fred Katayama reports.
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The deal would make Cingular the largest wireless carrier, ahead of Verizon Wireless, with about 46 million subscribers.
During a conference call, Cingular CEO Stan Sigman said that the deal should close by the fourth quarter and that the combined company will keep the Cingular brand name. Sigman will be the head of the combined company.
He also said it was likely that some employees would be "affected" by the merger but declined to discuss how many jobs may end up getting cut.
The two companies said the merger will let them offer better service in 97 of the top 100 U.S. markets. Sigman said that the companies did not think it would be necessary to make any assets sales in order to receive regulatory approval.
In addition, they said they'll be in a better position to build more advanced data networks and roll out new services for customers. This is key since Verizon Wireless announced plans last month to build a new high-speed data network.
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Both Cingular and AT&T Wireless have networks that run on the global system for mobile communications (GSM) standard, the same standard that most networks in Europe are run on.
Cingular, jointly owned by Baby Bells SBC Communications Inc. (SBC: Research, Estimates) and BellSouth Corp. (BLS: Research, Estimates), said SBC will contribute about $25 billion and BellSouth will pay $16 billion for AT&T Wireless. There had been speculation earlier this year that SBC and BellSouth were considering an initial public offering of Cingular but Sigman said there are no current plans for an IPO.
"This is great news for America's wireless users," Sigman said in a statement. "By combining the strengths of these two companies we expect to accelerate the availability of advanced wireless services for consumers."
But Consumers Union spokesman Chris Murray told CNNfn the merger could lead to higher prices and poorer service for cell phone customers. "We can expect to see fewer deals and higher prices, just as we've seen with the mergers of cable companies," Murray said.
Cingular said combining the two companies should provide $1 billion in savings by 2006 and more than twice that in starting in 2007.
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But both SBC and BellSouth expect to see some reduction in their earnings per share in 2005 and 2006 because of the deal, though Cingular did not give details of the earnings hit to be taken by its parent companies. It said that SBC should see a positive impact on earnings per share by 2007 and that BellSouth should have an earnings lift by 2008.
Shares of AT&T Wireless (AWE: Research, Estimates) jumped $2.08, or about 18 percent, to $13.90 in before-hours trading on Instinet. Shares of SBC and BellSouth had not yet traded on Instinet.
"Today's announcement is a triple win for AT&T Wireless shareowners, customers and employees," AT&T Wireless CEO John Zeglis said in the joint statement. Zeglis will be leaving the company once the merger is complete, he said.
Under Cingular's bid, equal to $15 a share, the company will also take on about $6 billion in debt, giving a total value of nearly $47 billion to the deal, according to Cingular.
Over the weekend, Vodafone raised its bid for AT&T Wireless to $38 billion, or $14 a share, to match an earlier bid by Atlanta-based Cingular. Vodafone, the world's largest wireless phone provider, owns a 45 percent stake in Verizon Wireless, with Verizon Communications Inc. (VZ: Research, Estimates)
Vodafone shares rose 7 percent in London trading as investors were relieved that it wouldn't be taking the earnings hit of an acquisition.
"On 17 February 2004, Vodafone withdrew from the auction when it concluded that it was no longer in its shareholders' best interests to continue discussions," the company said in a statement.
"Vodafone remains committed to its existing position in the U.S. market with its successful partnership in Verizon Wireless," it added.
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