AT&T Returns to Wireless Roots

With the approval of the $86 billion merger of AT&T and Bell South , AT&T is setting a new course,
positioning itself to return to its wireless roots.

Although AT&T groused about the final terms of last week’s merger agreement
hammered out with the FCC, that final step put the company on the road to
becoming the biggest telecom provider with 58.7 million wireless customers
and more than 67 million local phone users.

“Bell South is now part of AT&T,” trumpets the company Web site, which
includes upcoming commercials promoting the new corporate image. And although BellSouth was part of the deal, the real prize for AT&T was Cingular Wireless, which is the largest wireless provider.

“AT&T just divested themselves of wireless,” Gartner
analyst Ken Dulaney said. “Now they have it back.” The deal follows the 2005 merger between Verizon Wireless and MCI,
enabling the wireless provider to reach enterprise landline users.

The AT&T merger also comes as another AT&T rival, Sprint Nextel , formed an alliance
with cable giants, offering Sprint cell phone service as part of a bundle
offered to millions of consumers.

Companies will need to offer additional bundling services in more compelling ways, Yankee Group analyst Andy Castonguay predicted. For AT&T the merger means it will be able to offer cell phone service along with phone and Internet.

Although the telecom provider has offered Cingular in bundles previously, it
needed to do so carefully to prevent wireless service from impacting wireline.
The merger’s completion allows that wall to come down, analysts say.

Bundling wireless, landline and Internet is the only way AT&T will be able
to stay afloat, as waves of telecom changes threaten to swamp even the
largest vessels, according to Dulaney.

Beyond bundling, AT&T said it will leverage its wider footprint across
wireless, wireline, Internet and television to increase revenue from
advertising. As part of the initiative, it will later this year join
Verizon, Sprint and Vodafone in exploring mobile advertising.

In response, Sprint and Verizon aren’t sitting on their hands, NPD analyst
Neil Strother said. The key is to become a player in the nascent advertising
market without alienating subscribers. Because of the risk, AT&T is advised
to treat cell phone advertising gingerly, according to Strother.

AT&T will also begin experimenting with offering cell phone service
using subscriber’s home Wi-Fi networks. The service will allow users to
transfer calls between the Cingular Wireless network and a Wi-Fi connection,
according to spokesman Michael Coe.

Castonguay said we’ll likely see more about this later in the year as the carrier launches a dual-mode handset.

Despite the prospects, risk does remain for the new AT&T. Losing to
rivals because of poor customer service or inability to manage content
besides ringtones “is a very real concern” for AT&T, Dulaney warned.

We may see more about AT&T’s plans for Internet-based television, but while
it experiments with satellite providers, Verizon’s FiOS TV service is already available in nine states and has 117,000 subscribers.

Time and money will be needed to rebrand the already successful Cingular
brand, Castonguay said. Though the CEO spot is safe, lower positions may be
lost or changed. For instance, the AT&T wireless and the Cingular Wireless
headquarters must be combined, the analyst said.

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