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AT&T to re-enter mobile market with Sprint

Spurred by uncertainty over its current wireless contract, the long-distance giant announces a five-year deal with Sprint and says it may launch new cellular services before the end of 2004.

AT&T announced on Tuesday that it will re-enter the wireless market with Sprint.

The move comes as the telecommunications giant faces uncertainty over its contract with AT&T Wireless, which is being in a $41 billion deal.

AT&T Wireless was once a unit of AT&T, but the company spun the business off in 2001, as part of a larger restructuring plan.

Now, with the merger of Cingular and AT&T Wireless expected to create the world's largest wireless network, AT&T is gearing up for the competition. Through its five-year, nonexclusive deal to use Sprint's wireless network, AT&T expects to greatly expand its wireless service offerings. The company hopes to launch its service later this year.

"AT&T has proved it is capable of rolling out bundles of new and complex services quickly and cost-effectively, with top-notch customer service," David Dorman, AT&T's chief executive, said in a statement.

The deal specifically calls for AT&T to offer its service as a "mobile virtual network operator, with its own content, applications, operator assistance, billing and handsets."

AT&T plans to bundle the service with some of its existing consumer offerings, including the AT&T OneRate local and long-distance calling plans and the CallVantage voice over Internet Protocol (VoIP) service.

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"AT&T had to do this deal. Once the deal with AT&T Wireless and Cingular closes, AT&T would have a gaping hole in their portfolio," said Rick Black, a senior telecommunications analyst at Blaylock & Partners.

He added that there were few candidates that AT&T could choose from to replace AT&T Wireless as a partner.

"AT&T is an IP-based network, so they needed a packet-based network. That eliminated Cingular, which uses GSM, and T-Mobile. And they didn't want to go with Verizon, because that's a direct competitor," Black said.

Sprint will be able to boost the digital traffic on its network with the AT&T deal, Black said. And while the partnership doesn't help increase Sprint's retail subscriber ranking, it does improve its wholesale business and also lowers the costs of running its network, he said.

Additionally, the telecommunications giant plans to offer handsets that enable VoIP calls to be made over broadband connections in the home and in the workplace. It will also be able to develop its own content and Internet service provider technology foundation on top of Sprint's wireless network.

AT&T's plans with Sprint come as AT&T Wireless has been struggling.

Last month, AT&T Wireless announced plans to open 100 new retail stores and bolster its customer call service, after suffering from one of its worst financial quarters.

AT&T Wireless lost 367,000 subscribers in that quarter, while its competitors enjoyed a surge of new customers. The company estimated that it would have 40 percent fewer subscribers by the end of the year, based on the current rate of cancellations and nonrenewals.

Some analysts have speculated that Cingular, which is owned jointly by BellSouth and SBC Communications, may consider trying to renegotiate its buyout offer.