TMCnet News
AT&T, BellSouth Merge; Deal Awaits Regulatory ApprovalBy MAE KOWALKE
TMCnet Associate Editor for Channels A flood of analysis hit the news this morning as AT&T addressed investors and media today during a live conference call about its acquisition of BellSouth.
Responding to yesterday’s announcement of the merger, Federal Communications Commission Chairman Kevin Martin today said in a statement that his agency “will carefully weigh the information presented, examining any allegations of specific harm in individual markets and the potential benefits for the deployment of new services.” The merger is all but complete, awaiting only regulatory approval from the FCC and the U.S. Justice Department.
Much is being said about the merger, including concerns about potential job cuts and speculation that the pre-1984 Bell System is returning to monopolize the telecom industry.
But first, the facts.
Yesterday, AT&T (News - Alert) officially announced its acquisition of BellSouth for an equity purchase price of $67.1 billion. As part of the deal, three BellSouth (News - Alert) board members will be added to AT&T’s board.
One of AT&T’s key reasons for acquiring BellSouth seems to be a drive to increase its foothold in the wireless market, particularly by streamlining the operations of Cingular Wireless (News - Alert) which previously was jointly run by AT&T and BellSouth.
During this morning’s conference call, Ed Whitacre, AT&T’s CEO, said that the merger “will give us a single, unified ownership of Cingular Wireless... This will allow us to speed development of next-generation services.”
AT&T said in its overview of the merger that it expects one-third of its total 2007 revenues will come from the Cingular division.
It is worth noting how the deal will affect the Cingular brand. The Associated Press recalls that Cingular acquired AT&T Wireless in October 2004 for $41 billion, and then spent millions of dollars rebranding AT&T Wireless Services Inc. stores as Cingular stores.
All that will be erased under AT&T’s acquisition of BellSouth and its share of Cingular, the AP said; Cingular and BellSouth’s names will be absorbed into AT&T Inc.
As an aside, AT&T Inc. (“the new AT&T”) is the name of the company formed last November when SBC acquired AT&T Corp.
Employees of AT&T and BellSouth may be wondering if they, like the Cingular brand, will be absorbed. The Associated Press reports that AT&T/BellSouth initially will employee more than 316,000 people, “though that head count may fall as AT&T eliminates redundant operations.”
Fall it will, indeed. Reuters today reports that as a result of the merger AT&T will cut about 10,000 jobs, starting in 2007.
Aside from the impact on employees, though, what does the deal mean for the telecom industry?
By some reckonings, the merger of AT&T and BellSouth is a sign that “the old Ma Bell is set to make a glorious comeback,” TMCnet.com president Rich Tehrani said today in his analysis of the deal.
If that’s true, it can be seen in both positive and negative lights, according to one’s perspective.
For example, in a statement today, Competitive Enterprise Institute (CEI), a public policy group, praised the merger, saying that it “is a pro-competitive move that will benefit consumers.”
CEI’s Director of Technology Studies, Wayne Crews, said in the statement, “The kind of network integration that we will see from the merger of AT&T with Bell South is necessary to encourage competition among the communications networks and to foster the rollout of new ones.”
The perspective is somewhat different at many consumer-advocacy groups, which “are already calling for regulators to block the proposed $67 billion deal, characterizing it as a detriment to net neutrality and VoIP,” TMCnet.com news analyst Robert Liu wrote this morning.
Consumers Union and Consumer Federation of America both plan to lobby the Justice Department to block the merger, arguing that AT&T/BellSouth’s share of the U.S. consumer access line market (Liu’s estimate: nearly 42 percent) would constitute a serious threat to competition, resulting in higher prices for consumers.
Regulatory approval from the Justice Department and the FCC nonetheless seems likely.
For one thing, the telecom industry and the companies involved are quite a bit different than they were in the mid-1980s, when a Justice Department anti-trust lawsuit split apart the Bell System, the AP said in its coverage of the merger.
AT&T, the AP noted, “doesn't have the same monopoly power that Ma Bell had before the breakup” in part because “the telecommunications industry has never seen the scope of competition it must contend with today.”
Concern about AT&T’s potential monopoly power reasonably stems from the fact that, once the BellSouth deal is complete, six of the seven Baby Bells—the exception being Qwest, originally U.S. West—will “have been absorbed into AT&T, or will be part of the other big player, Verizon,” the AP said.
Perhaps that doesn’t matter, though, at least when it comes to a regulatory decision regarding the merger.
Tehrani takes this view about the current state of telecom industry regulation policy: “politicians have deemed the last few decades of competitive telecom to be a failure and the progress made by allowing different LECs to compete with the likes of companies like AT&T and MCI was apparently a bad idea.”
In Tehrani’s estimation, the expanded AT&T will be “more innovative, nimble and efficient,” providing benefits to customers by combining the Cingular, BellSouth and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions.”
Adding a note of caution, though, Tehrani also asks the questions that are on many people’s minds today about AT&T’s dominance: “with more size and more captive customers what is the imperative to keep prices as low as possible? Where will people turn if prices aren't kept low on DSL for example? The single other competitor is Cable. Are these two competitors enough to keep the market honest or do we need many more?”
Only time will answer those questions. Stay tuned.
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Mae Kowalke previously wrote for Cleveland Magazine in Ohio and The Burlington Free Press in Vermont. To see more of her articles, please visit Mae Kowalke’s columnist page.
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