The

AT&T Wireless

(AWE)

windfall could give the earthbound telecom sector a much-needed lift.

Shareholders of the struggling Redmond, Wash., wireless service provider are about to find $41 billion in their pockets. Rival

Cingular

is due to complete its all-cash buyout as soon as this week, closing a deal reached in February.

While some investors will surely take their check from Cingular and run, others seem likely to plow the proceeds back into the industry.Big fund managers, looking to maintain their sector weightings, could look to load up on other telecom stocks. That could mean good things for Cingular parents

SBC

(SBC)

and

BellSouth

(BLS)

, as well as for wireless rivals

Verizon

(VZ) - Get Report

,

Sprint

(FON)

and

Nextel

(NXTL)

.

"There will be a substantial amount of cash available and there's no doubt it will be a good thing for telecom," says a New York hedge fund manager who is long the Bells, Nextel and Sprint. Shares of all the telecom giants slipped modestly Monday, with the exception of AT&T Wireless, which moved up a dime to $14.90.

Regulators granted conditional approval of the deal Monday, saying they wouldn't block the merger if the companies divest themselves of assets in 13 markets spread over 11 states. Officials at SBC and BellSouth, the Cingular joint venture's parents, say they expect a speedy resolution. On a conference call with analysts Monday, BellSouth executives said that once regulators give the OK, it would take a "day or two to close."

AT&T Wireless partner

NTT DoCoMo

(DCM)

is the company's biggest shareholder, with some 17% of the stock. DoCoMo will get about $7 billion for its stake.

Arbitragers -- investors who hope to profit from the difference in AT&T Wireless' share price and the $15 buyout price -- hold a hefty chunk as well. Excluding the DoCoMo stake, the so-called risk arbs hold perhaps as much as half the remaining shares, observers say.

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."