Cingular Cash Could Spark Telco Rally

Neither DoCoMo nor the arbs seems likely to funnel their money back into the domestic telecom sector. Still, there could be as much as $17 billion available to former AT&T Wireless shareholders to reinvest in telecom, according to some analysts.

Of course, some of these investors may also take their money and flee to a more promising industry altogether. But analysts point out that institutional investors will control a good portion of the cash, and typically funds have guidelines that determine sector allocation. So in other words, money originally allocated to telecom will likely find its way back into telecom.

As one of the biggest cash infusions of its kind, that creates the expectation of an updraft for the industry, at least in the near future.

Using previous $10 billion-plus cash acquisitions as a guide, Morgan Stanley analyst Simon Flannery says history shows the positive benefits for a given industry tend to last about 80 days. Flannery's research indicates that on average, a sector that has a big cash redistribution outperforms the S&P 500 Index by about 7 percentage points in the first three months after the deal.

Flannery cautions, however, that once the cash afterglow wears off, industries tend to lag behind the S&P.

But for now, investors seem to be eyeing some of the obvious beneficiaries of the new telecom money. Some people see buyers SBC and BellSouth as the closest investments aligned to AT&T Wireless once the operation is folded into Cingular.

Nextel is also a strong candidate since it will soon be the only pure-play large wireless stock. Verizon and Sprint have strong wireless units within a less hearty wired business.

"I'm not sure this is a clear investable catalyst," says the hedge fund manager, "but it does provide sort of a tail wind for the group."