In the days following AT&T’s announcement that it is buying BellSouth Corp. for $67 billion in stock in a bid that further consolidates the telecommunications industry, education leaders and other consumers were mulling the possible implications of the deal.
The proposed purchase, announced March 5, would give AT&T total control of the firms’ growing joint venture, Cingular Wireless LLC. It also would go a long way toward resurrecting the old Ma Bell telephone system, which was broken apart by the federal courts in 1984.
The merged company reportedly would have 70 million local-line phone customers, 54.1 million wireless subscribers, and nearly 10 million broadband subscribers in the 22 states where they now operate. The deal appears to be the largest yet among U.S. telecom players.
In 1999, MCI WorldCom Inc. agreed to buy Sprint Corp. for an even larger sum, $115 billion, but that deal was blocked by federal regulators. Internationally, Britain’s Vodafone Airtouch PLC paid $180 billion in stock for Mannesmann AG of Germany in 2000.
The sale, which is subject to regulatory and shareholder approvals, would give San Antonio-based AT&T total control over Atlanta-based BellSouth’s nine-state network and its share of Cingular. AT&T currently owns a 60-percent share of the nation’s No. 1 cell phone provider, while BellSouth has 40 percent.
The deal would substantially expand the reach of AT&T, already the country’s largest telecommunications company by the number of customers served.
Together, the three companies employ more than 316,000 people, though that head count is likely to fall as AT&T eliminates redundant operations.
After spending millions of dollars to rebrand AT&T Wireless Services stores as Cingular stores and hundreds of millions of dollars more on marketing the new Cingular brand after its $41 billion acquisition of AT&T Wireless in October 2004, Cingular will now become AT&T if the merger with BellSouth is completed.
The BellSouth name also would be absorbed in the deal.
“It’s going to be confusing,” said industry analyst Jeff Kagan. “This is the reinvention of the telecommunications industry.”
AT&T Inc. was formed by SBC’s acquisition of AT&T Corp. in November. The deal added a substantial national reach to the former Southwestern Bell’s local business, which is concentrated in 13 states, including Texas, California, and the Midwest.
BellSouth is the dominant local telephone provider in the Southeast.
The shift in the U.S. telecom landscape–moving from four to three regional Bell operators–is sure to garner close review from Washington.
“Twenty years after the government broke up Ma Bell, this deal represents a mother-and-child reunion,” said Rep. Ed Markey, the ranking Democrat on the House Subcommittee on Telecommunications and the Internet.
“Our nation’s telecommunications markets must be vigorously competitive and open to innovation in order to promote job creation and economic growth,” Markey said. “This merger proposal is one that unquestionably merits the utmost scrutiny by government antitrust officials.”
The deal furthers the reunification of the Baby Bells, the eight regional telephone operators that were spun off from the old AT&T in 1984 under a federal court order. At that time, and in a different regulatory climate, AT&T was largely a long-distance company.
Cingular spokesman Mark Siegel dismissed the notion there would be public perception issues with the switch back to the AT&T name for the wireless company.
“We built a business,” Siegel said. “Is the brand an important part of that business? Yes. But it is a business that is made primarily up of people. None of that changes.”
Siegel said sole ownership by AT&T “gives us clarity of decision-making, and that is a good thing.”
With cable companies increasingly vying for traditional phone companies’ share of local telephone service, such mergers in the industry have been commonplace of late. Kagan, the industry analyst, said more could be on the horizon.
“We’re not over it yet,” Kagan said.
The combined company will be based in San Antonio, and Ed Whitacre, AT&T’s chairman and chief executive, will keep those positions. His counterpart at BellSouth, Duane Ackerman, will run BellSouth’s operations in a “transition period” after the merger.
Cingular’s headquarters will stay in Atlanta, as will the Southeast regional headquarters for the merged company.
Cingular has grown strongly since it was formed in 2001 by the merger of a number of regional wireless carriers, and there has been speculation that AT&T wanted to assume full control of this growth business, in part to be able to market it under the AT&T name.
The wireless operations will be the growth engine of the new company, reportedly accounting for one-third of the combined revenue.
AT&T expects the acquisition to save it $2 billion annually, starting the year after the deal closes. About half of the savings would come from reduced advertising expenses and from combining the companies’ work forces.
The rest of the savings would come from combining the backbone network and information-technology operations of the two companies.
Coming as it does in the midst of a heated debate over the future of broadband internet services–and whether service providers should have to pay more for a higher quality of service (see related story)–the proposed merger has many people wondering what it will mean for the telecom industry’s plans for a two-tiered system.
But at least one reporter believes the deal could force telephone companies to back away from their push to charge web companies extra to deliver video and other services to the nation’s businesses, homes, and schools.
As a matter of practicality, with AT&T and BellSouth now focused on getting their $67 billion deal approved by the government, the companies might need to turn less vocal in threatening an end to what has come to be known as “network neutrality,” according to Associated Press business columnist Bruce Meyerson.
“The phone companies haven’t been shy in asserting their right to run their networks as they see fit, arguing that market forces and competition, rather than regulation, are the best protection against the abuse of network power their foes fear,” Meyerson wrote for a March 7 column. “Still, if it’s a choice between that and winning government clearance for a merger, the industry has already shown a willingness to back down on the network fight.”
Meyerson added, “Last fall, the Federal Communications Commission insisted on a two-year guarantee of network neutrality before signing off on the Verizon-MCI and SBC-AT&T deals. It stands to reason that the FCC will seek similar pledges in reviewing the AT&T-BellSouth deal. And since AT&T likely expects as much, it’s hard to fathom that the company would risk a rejection of the deal by pushing too hard against pledging anew to treat all web traffic on its network equally.”
The FCC has declined comment on whether network neutrality would be a consideration in its review of the deal. For now, AT&T is maintaining that the issues are unrelated. “We see the rationale for this merger as separate and distinct,” said spokesman Michael Coe.