AT&T and Verizon: Wireless at heart

NEW YORK (Fortune) -- The nation's two biggest phone companies recently signaled just how important wireless is to them: Upon completion of his company's $86 billion acquisition of BellSouth last week, AT&T CEO Ed Whitacre told the Wall Street Journal, "The biggest asset we bought here was Cingular," the wireless company AT&T and BellSouth had jointly controlled before the merger.

He added: "We're about to become a company with wireless at its heart." In an equally telling gesture a few weeks earlier, Verizon announced a management reorganization that elevated Denny Strigl, the CEO of Verizon's successful wireless business, to president of the whole company.

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It's no secret why these former Baby Bells are highlighting their wireless operations and executives. Their core local phone businesses are under attack from cable operators and new carriers that deliver phone calls over Internet networks. Revenue from corporate accounts is stagnant.

Wireless, though, continues to grow. It seems like every man, woman and child over the age of 10 in the U.S. has a mobile phone, and wireless shows no signs of slowing. In the first nine months of the year, for example, Cingular's operating revenue grew almost 9 percent; Verizon Wireless said its third-quarter revenue was up 18 percent - its fourth consecutive quarter of 18 percent or better revenue growth.

"Wireless is at the center of everything that's going on at the two top telcos in North America," says Ford Cavallari, a partner at Monitor Group in Cambridge. "It's not surprising: wireless still has a profitable voice business, and a very promising data component, which includes video."

Much attention has been paid to the phone companies' efforts to bundle wireless service with home phone, Internet and, in some markets, pay television services, which is AT&T (Charts) and Verizon's (Charts) attempt to combat the cable operators.

And while the cable companies have a joint venture with Sprint (Charts) to provide wireless phone services, wireless really does remain the phone companies' edge: they have better-known brands, scale and, if they chose, the ability to integrate wireless into their other services.

AT&T, for example, has talked about letting people use their Cingular phones to remotely program their AT&T digital video recorders, or even view on their cell phones programs they've taped at home.

But the real opportunity for AT&T and Verizon seems to be in the corporate arena. For years wireless companies have been talking about selling wireless services to corporations the way their landline counterparts sell voice and data services: a one-stop, long-term contract that covers an entire company's service and equipment needs.

For the most part, though, such plans have fizzled. Most corporate employees still go out and get the phones they want, sign up for service independent of their employer and charge their business calls back to the company.

If an employee buys a smart phone, like a Treo, he or she probably has to get the company IT department to hook the phone up to corporate e-mail, a headache for everyone involved.

AT&T and Verizon need to figure out ways to win 100 percent of a company's wireless business. These companies spend millions of dollars a year maintaining storefronts in strip malls and busy street corners, but it would seem just as smart to have a wireless "store" at Citigroup (Charts) or Google (Charts) headquarters, stocked with the latest and greatest smart phones that executives crave.

The phone companies can then do some really interesting things with integrating wireless into the corporate user's experience. Forget remote programming of DVRs: most corporate customers would love wireless devices that seamlessly tie into files on their desktops or, even more simply, send all e-mail and voicemail messages to a single inbox.

A wireless focus on corporate makes a ton of sense: It could help reverse the tepid revenue trends, and big companies are customers that cable operators are unlikely to win with their wireless joint venture. AT&T and Verizon say they are wireless companies at heart: finding new ways to win corporate business would be a good start.

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