diff --git a/internal/gatewayapi/listener.go b/internal/gatewayapi/listener.go
index 07d71bfd172b..3c7aa41945c6 100644
--- a/internal/gatewayapi/listener.go
+++ b/internal/gatewayapi/listener.go
@@ -43,10 +43,7 @@ func (t *Translator) ProcessListeners(gateways []*GatewayContext, xdsIR XdsIRMap
 		if resources.EnvoyProxy != nil {
 			infraIR[irKey].Proxy.Config = resources.EnvoyProxy
 		}
-
-		xdsIR[irKey].AccessLog = processAccessLog(infraIR[irKey].Proxy.Config)
-		xdsIR[irKey].Tracing = processTracing(gateway.Gateway, infraIR[irKey].Proxy.Config)
-		xdsIR[irKey].Metrics = processMetrics(infraIR[irKey].Proxy.Config)
+		t.processProxyObservability(gateway.Gateway, xdsIR[irKey], infraIR[irKey].Proxy.Config)
 
 		for _, listener := range gateway.listeners {
 			// Process protocol & supported kinds
@@ -130,6 +127,12 @@ func (t *Translator) ProcessListeners(gateways []*GatewayContext, xdsIR XdsIRMap
 	}
 }
 
+func (t *Translator) processProxyObservability(gw *gwapiv1.Gateway, xdsIR *ir.Xds, envoyProxy *egv1a1.EnvoyProxy) {
+	xdsIR.AccessLog = processAccessLog(envoyProxy)
+	xdsIR.Tracing = processTracing(gw, envoyProxy, t.MergeGateways)
+	xdsIR.Metrics = processMetrics(envoyProxy)
+}
+
 func (t *Translator) processInfraIRListener(listener *ListenerContext, infraIR InfraIRMap, irKey string, servicePort *protocolPort) {
 	var proto ir.ProtocolType
 	switch listener.Protocol {
@@ -242,7 +245,7 @@ func processAccessLog(envoyproxy *egv1a1.EnvoyProxy) *ir.AccessLog {
 	return irAccessLog
 }
 
-func processTracing(gw *gwapiv1.Gateway, envoyproxy *egv1a1.EnvoyProxy) *ir.Tracing {
+func processTracing(gw *gwapiv1.Gateway, envoyproxy *egv1a1.EnvoyProxy, mergeGateways bool) *ir.Tracing {
 	if envoyproxy == nil ||
 		envoyproxy.Spec.Telemetry == nil ||
 		envoyproxy.Spec.Telemetry.Tracing == nil {
@@ -265,8 +268,13 @@ func processTracing(gw *gwapiv1.Gateway, envoyproxy *egv1a1.EnvoyProxy) *ir.Trac
 		samplingRate = float64(*tracing.SamplingRate)
 	}
 
+	serviceName := naming.ServiceName(utils.NamespacedName(gw))
+	if mergeGateways {
+		serviceName = string(gw.Spec.GatewayClassName)
+	}
+
 	return &ir.Tracing{
-		ServiceName:  naming.ServiceName(utils.NamespacedName(gw)),
+		ServiceName:  serviceName,
 		Host:         host,
 		Port:         port,
 		SamplingRate: samplingRate,
diff --git a/internal/gatewayapi/listener_test.go b/internal/gatewayapi/listener_test.go
index 6cdd4a696593..92384872bbc3 100644
--- a/internal/gatewayapi/listener_test.go
+++ b/internal/gatewayapi/listener_test.go
@@ -19,8 +19,9 @@ import (
 
 func TestProcessTracing(t *testing.T) {
 	cases := []struct {
-		gw    gwapiv1.Gateway
-		proxy *egcfgv1a1.EnvoyProxy
+		gw       gwapiv1.Gateway
+		proxy    *egcfgv1a1.EnvoyProxy
+		mergedgw bool
 
 		expected *ir.Tracing
 	}{
@@ -44,6 +45,29 @@ func TestProcessTracing(t *testing.T) {
 				SamplingRate: 100.0,
 			},
 		},
+		{
+			gw: gwapiv1.Gateway{
+				ObjectMeta: metav1.ObjectMeta{
+					Name:      "fake-gw",
+					Namespace: "fake-ns",
+				},
+				Spec: gwapiv1.GatewaySpec{
+					GatewayClassName: "fake-gateway-class",
+				},
+			},
+			proxy: &egcfgv1a1.EnvoyProxy{
+				Spec: egcfgv1a1.EnvoyProxySpec{
+					Telemetry: &egcfgv1a1.ProxyTelemetry{
+						Tracing: &egcfgv1a1.ProxyTracing{},
+					},
+				},
+			},
+			mergedgw: true,
+			expected: &ir.Tracing{
+				ServiceName:  "fake-gateway-class",
+				SamplingRate: 100.0,
+			},
+		},
 		{
 			gw: gwapiv1.Gateway{
 				ObjectMeta: metav1.ObjectMeta{
@@ -149,7 +173,7 @@ func TestProcessTracing(t *testing.T) {
 	for _, c := range cases {
 		c := c
 		t.Run("", func(t *testing.T) {
-			got := processTracing(&c.gw, c.proxy)
+			got := processTracing(&c.gw, c.proxy, c.mergedgw)
 			assert.Equal(t, c.expected, got)
 		})
 	}