Policy Calls Likely Tougher at New AT&T

The conflicting policy goals of wireline and wireless have bedeviled other companies - notably Sprint and Alltel before they spun off wireline operations. In an oft-cited example, even before it spun off its wireline unit, Alltel filed for ETC status in Va. The company, whose inclination as a rural LEC was to resist expanding USF, decided practicality outweighed ideology.

Cingular in the past has sometimes espoused positions favored by its Bell parents, in opposition to other wireless carriers. Most famously, Cingular was the lone wireless carrier to endorse the Missoula Plan for intercarrier compensation reform.

Wireless is the merged AT&T’s single largest revenue source, bringing 34% vs. 22% from wireline consumer business, and wireless revenue is growing quickly. But culturally, AT&T’s leaders, who will call the policy shots, have Bell backgrounds. Unlike at Verizon, where former Verizon Wireless CEO Denny Strigl was made pres. of the entire company, no one from the AT&T wireless side has ascended to management’s uppermost reaches.

“Wireless is a relatively small part of an extremely large elephant and the elephant is going to wag the tail, not the other way around,” said a regulatory attorney, noting that with Sprint and Alltel “there were often conflicts about what to do and their positions often reflected that conflict.”

Another lawyer sees conflict as inevitable within AT&T, as wireless unit heads pushing as hard as they can to maximize profitability in their bailiwick, he said: “Whoever wins on the numbers will win the battle. AT&T is too big and too much is at stake. Shareholders aren’t stupid. They're going to keep the pressure on management to maximize returns and maximize shareholder value.”

“It depends on how the company wants to play it,” a 3rd attorney said: “They can set aside one interest or the other and let one side or the other be dominant in a particular proceeding for the better interest overall of the company. You need to look at the dominant revenue source on a particular issue or the overriding objective or which way the wind is blowing… It’s an opportunity. They can declare victory on any issue now.”

As their wireless businesses grew, Sprint and Alltel were increasingly likely to adopt positions advantageous to them, a lawyer said, adding that AT&T’s culture could weigh against the company aligning with other wireless carriers. “AT&T still has a lot of senior executives who comes from the regulated business,” he said: “The Washington office and state regulatory offices are filled with people that came up on the wireline side.”

Apple Collaboration Key to Rebranding

AT&T’s marketing campaign and collaboration with Apple, now that Cingular is being rebranded as AT&T Wireless, will determine whether the AT&T Wireless brand works -- not bloggers’ and tech columnists’ belief that Cingular works better with young people, several telecom analysts said. Medley Global Advisors analyst Jessica Zufolo said that if AT&T markets properly, old survey data won’t matter. “Their deal to partner with Apple,” with its sleek products and brand name, “will certainly help” too, she said.

Donna Jaegers of Janco Partners sees it differently: Cingular brand’s look and feel probably better suits the youth market, and AT&T can keep it as “a fighting brand,” as Sprint does with Boost. Far more important than brand are coverage and a catalog of cool varipriced handsets, she said, agreeing that the Apple link helps AT&T, as a short-term exclusive Razr deal helped Cingular. Ultimately it didn’t make sense for the supercompany to double-advertise, Jaegers said, and it’s worth the cost to consolidate the brand. “They spent $50 million to go to Cingular, they'll spend $50 million plus to go back,” she said.

“I'm sure there will be people in the beginning who'd like it to remain Cingular” analyst Jeff Kagan said: “I got the same questions a year ago with AT&T and SBC.” But that discussion won’t last long, since consumers young and old will be more concerned with service than brand, he said.

AT&T Wireless will be the first major wireless carrier wholly owned by a U.S. Bell. This means obvious synergies and efficiencies -- Zufolo said consolidating management and streamlining the organization were the chief motivation for the merger -- but also technological advantages.

Jaegers said engineers in the newly combined AT&T have told her they're “working really hard” on a broad IMS solution. If well executed and quickly deployed, IMS would defuse a major advantage held by cable carriers by integrating wireless into the home network, she said. It would lure the consumer by lopping off wireless minutes while on the indoor Wi-Fi network, she said, and drastically cut capex for AT&T by eliminating the need for the split cell or pico cells now needed to deploy wireless service indoors.

This isn’t the only bundle-friendly move we're going to see, Kagan said. Comcast is pushing in that direction, both with Sprint and in the spectrum arena, he said, and everyone knows about Verizon’s efforts to consolidate control of its own wireless subsidiary.