• by March 7, 2006

The advertising business for a combined AT&T and BellSouth, even after the planned cuts are made once the proposed merger is complete, will still end up a whopper that would be the jewel in the crown of any agency or holding company.

Media companies, however, will likely suffer as combined budgets will result in less spending in specific arenas.

Together, the two telecommunications companies now spend an estimated $3 billion annually, according to estimates from Merrill Lynch. AT&T has said its goal is to save a total of $18 billion after the merger, with annual average savings of $2 billion a year starting in 2008 through the combination of operations and functions.

An undetermined amount of advertising spending is expected to be included in that amount, with some observers speculating it could reach $500 million annually.

Even so, the combined entity, which will include Cingular Wireless (currently co-owned by AT&T and BellSouth) as well as additional Internet and television assets that the company will want to establish as new brands, can be expected to spark significant marketing efforts, probably well in excess of $1 billion. That will result in lucrative accounts for creative agencies as well as for buying and planning services, especially if a single agency or holding company can convince the new telecommunications giant to consolidate all its spending in one place.

Several agencies currently service AT&T, BellSouth, and Cingular. WPP-owned agency Grey Advertising handles creative duties for Bell South, while Interpublic's Initiative handles media planning and buying. AT&T is handled primarily by Omnicom agencies, including GSD&M in Austin, TX and BBDO, which handles Cingular.

Exactly how a combined account would shake out remains to be seen, of course, and current spending patterns by individual components of the merged entity would likely shift. That means certain media now favored by each individual company will suffer when the accounts are combined.

Merrill Lynch said newspapers have the most to lose from the merger, since more than 40 percent of the companies' combined ad budgets were spent on the medium, representing more than $830 million. Network television was second on the list, with 20 percent of the combined budgets representing over $400 million.

However, John Kimball, chief marketing officer at the Newspaper Association of America, disagreed.

"My sense is that it's a little early to make those kinds of predictions," he said. "Sometimes we think consolidation will wreak havoc, but sometimes it doesn't."

He acknowledged that logic would dictate that spending would drop in a single medium when two budgets are combined and only a single brand is being marketed, but the vagaries of this particular industry might dictate otherwise.

"The telecom business can be volatile, and there are a lot of unknowns in this whole thing," he said. "You can't tell what the landscape will look like in two years. You can't tell what Verizon will do in response to this. And don't forget, there's a good reason why these companies spend as heavily as they do in this category. It has the impact they're looking for."

Analysts pointed out that the proposed $67 billion takeover, if approved, will not fully take effect until 2007, which is when the anticipated cuts would be made.