Property Repercussions
Could Follow Big Merger

AT&T Wireless Services Inc. and Cingular Wireless don't just overlap coverage areas. Their company-owned retail stores also have prime real estate in many of the same main streets and strip malls across the country, often as side-by-side competitors.

So if the $41 billion deal to merge the cellphone giants goes through, expect many of those stores to close down. In addition, industry experts predict slower expansion of new stores, since there will be only one brand to sell.

As the use of wireless phones has proliferated in recent years, so have the retail stores that sell and service them. The new category of store provided much needed growth in the retail real-estate sector, a trend that could slow now that market consolidation is afoot.

Still, carrier-owned cellphone outlets are some of the most important assets for wireless providers. Over 50% of customers get cellular service at those stores, according to a survey conducted last March by Yankee Group, a Boston-based research firm.

AT&T Wireless, based in Redmond, Wash., gets 60% of its customers through its 1,045 stores, along with its online store. Seeing it as a profitable way to sign up new subscribers and to service existing ones, AT&T Wireless has invested heavily in new stores, adding 149 in 2003. It added 125 stores in 2002.

The stores are "much more cost-efficient," than other channels, says David Caouette, an AT&T Wireless spokesman. The stores have "been a focus of ours for over a year now."

In fact, throughout the industry company stores tend to be the least expensive way to get new customers, since there's no sales commission, as there is with independent resellers. The stores also provide a good way to interact with consumers and show off value-added products, such as text messaging, Web browsing and other multimedia features.

Getting customers to sign up for these extras has been an "uncracked nut" for the industry, says Adam Guy, analyst with Yankee Group. He adds that AT&T Wireless is "ahead of the curve" on using its stores as sales channels.

Cingular has 1,700 company-owned stores. It hasn't announced what its real-estate strategy will be if the merger is approved. "We'll be looking to see what makes sense from a business point of view and see what gives us the broadest distribution," says Clay Owen, a Cingular spokesman. "Clearly, there is some overlap that we will be examining."

Some markets without overlap: Denver, Phoenix and Minneapolis. In those areas, AT&T Wireless stores will be an important tool in acquiring and servicing customers for the combined company. That also could be true in New York, where Cingular is a relative newcomer.

Certain parts of the country may see more store consolidation than others. That could be true in the South and West, where Cingular's parent companies -- SBC Communications Inc., San Antonio, and BellSouth Corp., Atlanta -- are the incumbent local phone providers and where around 80% of Cingular's customers reside.

"The places where AT&T Wireless stores are most valuable are outside the SBC and BellSouth region, where AT&T has the longer-standing track record," says Charles Golvin, principal analyst for Forrester Research, a market-research firm in Cambridge, Mass.

An enlarged Cingular also has the advantage of picking the best locations. Growth for new stores will also be affected. "There might be fewer openings over the next couple of years," predicts Greg Teets, an analyst with A.G. Edwards & Sons.

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