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AT&T, Sprint Make Wireless Phone Service Deal

Posted on: Tuesday, 18 May 2004, 06:00 CDT

May 19--After Cingular Wireless completes its purchase of AT&T Wireless later this year, AT&T Corp. will launch a wireless phone service using the network operated by rival Sprint Corp.

If you find that confusing, it is part of the plan.

AT&T Corp. has a "window of opportunity to take advantage of the confusion to win as many customers as they can," said Michael Grossi, a consultant with Boston-based Adventis. "Confusion is absolutely the cornerstone of AT&T's strategy."

AT&T Corp. signed a five-year agreement Tuesday to sell wireless service over Sprint's network, the companies said.

AT&T Corp. spun off its wireless unit as an independent company in 2001. That company, which uses AT&T's name and logo, agreed earlier this year to merge with Cingular in a $41 billion deal expected to close in the fall.

As part of the spin-off, AT&T Corp. stipulated that if AT&T Wireless were sold, the brand would revert to the parent corporation, said Grossi.

"An AT&T Wireless customer probably won't realize his company is gone until he gets a bill that says Cingular on it," said Grossi. "But his phone's logo will still say AT&T."

Mark Siegel, a spokesman for AT&T Wireless said once the deal with Cingular closes "we will be branded with the Cingular brand. We will cooperate to effect whatever transitions need to be made with the AT&T brand, which, obviously, we will no longer use."

AT&T Corp. said it will begin selling wireless phones bearing its logo as soon as the Cingular deal closes and will market cell phone service to the 30 million customers who use its long distance and local wired phone service.

Kevin Crull, AT&T Corp. senior vice president, said that his firm will offer some forms of wireless service before the Cingular deal closes, but the main rollout and marketing push will come once his firm can freely promote the AT&T brand.

"This isn't a resale of Sprint's service," Crull said. "We're using Sprint as a wireless last mile connection to our network."

AT&T will add the wireless service to its existing service packages. It also plans to offer wireless Internet telephony that would enable customers to make calls from Wi-Fi hotspots as well as using the Sprint cellular network, Crull said. AT&T also has the right to contract with other carriers in addition to Sprint.

Sprint supplies Qwest Communications International Inc., Virgin Mobile and others with wholesale mobile service to create what the telecom industry calls a mobile virtual network operator. While relatively new to the United States, MVNOs have been quite popular in foreign markets.

Sprint was among the first U.S. wireless carriers to embrace the idea, said Grossi.

"A lot of other carriers didn't believe in the MVNO model," he said.

John Garcia, senior vice president for sales and distribution at Sprint, said that its deal with Virgin Mobile launched its wholesale business. Rather than try to reposition Sprint as company best suited to sell to teenagers, Garcia said it made more sense to let Virgin Mobile do it.

"We've had great success," he said. "We are part owner of Virgin Mobile."

As more carriers bundle local phone service with long distance and Internet connectivity, wireless is seen as an essential component, said Jeff Kagan, an Atlanta-based telecom analyst.

"Sprint has recognized the wholesale side of the business becomes more important as competition on the retail side heats up," said Kagan, who predicts that MCI Corp. and cable television operators may be the next to start MVNO cell service.

Even though AT&T Corp. may gain wireless customers from confusion over its branding, that strategy could backfire, said Peter Firstbrook, a wireless analyst with META Group.

"AT&T Wireless has been losing 350,000 customers a quarter," said Firstbrook. "It's the only major carrier to lose customers. They obviously haven't done a good job of managing their existing customer base."

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