AT&T Corp. announced yesterday it is again going to sell mobile-phone service, rebuilding a business it spun off three years ago and potentially giving new life to the AT&T Wireless brand name.
The nation's largest long-distance carrier, which also has more than 4 million local phone customers, will use Sprint Corp.'s wireless network but negotiate its own deals with device manufacturers and handle its own marketing and software development.
It wants to reenter the cellular business in order to offer its 30 million business and residential customers bundles of telephone and Internet services. With cable companies coming out with local telephone service this year, and with regional Bell companies like Verizon Communications Inc. and SBC Communications Inc. offering package deals with their affiliated wireless companies, AT&T must have wireless service to be competitive, said Blair Levin, an analyst with Legg Mason Wood Walker.
Customers who subscribe to bundles are less likely to cancel service than those who subscribe to any single telecommunications service, and a bigger bundle means bigger money for the telecommunications providers. "It's the battle of the bundles, and you can't compete without a bundle of service," Levin said.
For companies without a wireless business of their own, resale is becoming increasingly common. Earlier this year, Qwest Communications International Inc. announced it would use Sprint to resell its own brand of wireless service. Virgin Mobile USA Inc. also resells mobile-phone service using Sprint's network. Some analysts believe cable companies, and AT&T's long-distance competitor MCI Inc., will also start signing resale deals to add to their video, local telephone and Internet service offerings.
"This is an industry that has exploded, in terms of demand," said Kevin Crull, general manager for wireless services and senior vice president of AT&T. "Wireless is clearly a huge growth market."
Sprint will carry the AT&T cellular calls to radio towers in a five-year deal. AT&T is negotiating similar deals with other wireless carriers, spokesman Jim Byrnes said.
A precipitating event for AT&T was the $41 billion merger of Cingular Wireless and AT&T Wireless, announced in February. Completion of that deal, expected later this year, will allow AT&T to regain control of its former affiliate's brand name, Crull said. The company hasn't decided whether to use AT&T Wireless as a separate brand or market the new wireless service under the general AT&T brand.
The AT&T Wireless brand name has suffered in recent months, after a persistent software problem and reports of poor customer service. It lost 367,000 customers in the first quarter.
Crull said the AT&T Wireless brand remains attractive to consumers. "The AT&T brand is remarkably powerful today, despite the customer reports coming out of AT&T Wireless," he said.
Either way, integrating another wireless operation into AT&T's operations is a risky one, according to some analysts.
"WorldCom Wireless tried the resale model and it didn't work," because it wasn't well run, said Jonathan Atkin, an analyst with RBC Capital Markets.
Bob Egan, president of industry consultancy Mobile Competency Inc., noted AT&T itself has had a mixed record in delivering wireless services. "Before, they had the right vision, and they had bad execution," so the question is whether the company can deliver better service this time, he said. The company can't afford to fail, he said: "I think wireless is a matter of survival for AT&T."