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3/6/2006
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All Eyes On Cingular As AT&T, BellSouth Merge

AT&T's acquisition of BellSouth will enable the new company to move ahead more aggressively with its Cingular Wireless unit, already the largest cell phone service provider in the country.

AT&T's acquisition of BellSouth will enable the new company to move ahead more aggressively with its Cingular Wireless unit, already the largest cell phone service provider in the country.

In the announcement of the merger Sunday, the firms stressed the importance of the wireless operation.

"AT&T had to have full control of wireless," said Pete Wilson of telecommunications consultancy Telwares in an interview Monday after the dust settled on the merger announcement. "Wireless is chiefly where the growth is in the industry. In enterprise sales deals, both Cingular and AT&T were often hamstrung because they were competing with each other." And, AT&T also needed to clear Cingular business with BellSouth, which owned 40 percent of Cingular.

Wilson, who is vice chairman of Telwares, said the massive $67 billion merger that places AT&T in the top position as the country's largest telecommunications company is likely to elicit a response from number two player Verizon Communications. He expects Verizon to make an acquisition bid for Qwest Communications International, the last remaining former Regional Bell Operating Company (RBOC).

"Clearly, Verizon has to go after Qwest now," said Wilson. "Verizon will have to keep AT&T from getting it." Qwest stock jumped 5.5 percent in early market trading Monday, in an indication investors think the Colorado-based RBOC will be a takeover target.

BellSouth has taken a more conservative path in recent years, allowing AT&T, which was formerly the Southwestern Bell RBOC, to be more competitive.

The merger also takes place as the telephone companies continue to installing fiber optic cable in their respective regions in an effort to compete with cable companies. While the cable companies have been poaching on the telecommunications firms' traditional telephone service, the former RBOCs believe that they can gain by installing TV-capable fiber, which has a much higher throughput than co-ax cable.

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