AT&T to buy BellSouth
That the new AT&T decided to buy out closely allied BellSouth in a $89 billion deal is no great surprise, but the timing certainly is. SBC had just swallowed the old AT&T, its own parent company, and renamed itself as AT&T, with only a slight change to the old AT&T logo. That the company could be already able to absorb yet a bigger rival is breathtaking.
Also breathtaking is the challenge to the antitrust regulators. The reasons:
- The new AT&T is already an amalgamation of four of the Baby Bells that were spun off by antitrust decree in 1984, with the remnant of the old AT&T as well. The BellSouth deal will leave only three Baby Bells standing, only three major companies with land lines: AT&T, Verizon, and smaller competitor Qwest, an because of Qwest's problems, a virtual duopoly.
- The new company will be the largest telecommunications company in the world. It will dominate land lines in California, throughout the South and the Midwest. It will also hold the largest wireless phone company, Cingular a joint venture of SBC and BellSouth that also in 2004 bought AT&T Wireless. It also has the largest direct business phone service company in the US, based primarily on the old AT&T.
- The deal would be the fifth-largest ever in US history, according to some sources.
- The new AT&T will be able to bundle wireless phone, land-based phone, Internet, and TV services in a way that would make life even more difficult for smaller rivals that offer or only one of the above.
- The company would be able to be a dominating force in the Internet, and join with others to change the rate structure. "AT&T wishes to be lord of the digital domain, able to impose a raft of tolls, fees and what they term 'monetization' strategies for the Internet -- whether it comes to us via wires or wireless devices," according to Jeff Chester, the executive director of the Center of Digital Democracy. ("Pact Represents Gamble Regulators Will Accept A New Telecom Giant", Wall Street Journal, 3/6/06)
- The number of suppliers of high-volume phone connections to businesses nationwide will be cut down to two, AT&T and Verizon.
On the face of it, the acquisition of BellSouth would seem to violate every rule of antitrust and the history of the industry and its regulators. But clearly AT&T's strategy will be one of redefining market segments.
The company cites competition looming from non-phone companies. TV cable companies, satellite companies, wireless company Sprint/Nextel, software companies like eBay (Vonage), Skype, and, potentially, Google, perhaps even electric power companies and, are starting to offer Internet-based VOIP and wireless telephony, while AT&T is entering into their bailiwick with video and broadband services. The reality, it will be argued, is that there are not two big players in the phone industry but at least four major players (adding Comcast and Time-Warner Cable). Competition, it will be stated, will still be alive and well.
As a New York Times article ("Huge Phone Deal Seeks to Thwart Smaller Rivals", 3/6/2006) notes
The new, more complex environment is a big reason why anti-trust watchdogs have not blocked large phone deals in recent years. Regulators in the Bush Administration have also been generally sympathetic to mergers, which has not escaped AT&T's attention, analysts said.
Most analysts believe the deal will go through, with only a few provisos on such matters as network neutrality. And it will clear the way for more takeovers by phone rival Verizon, as well as the leading cable companies.
One of the first consequences of the deal will be the loss of 10,000 jobs. That's in addition to 12,000 job losses announced in the wake of the SBC/AT&T merger in 2004. And a further 4,000 announced in 2003 just to please the stock market. (Verizon eliminated 7,000 jobs after the MCI deal, and eliminated 30,000 jobs in preceding years) This is a big deal, with a large set of well-paid jobs flushed away in record time. But the top execs will most certainly shed nary a tear.
Already there is speculation that Verizon will act to keep from being eclipsed. It has recently acquired MCI as a counter to the SBC/AT&T deal. It is trying to buy out 45% share of Verizon Wireless now owned by British warless firm Vodafone, a deal that Vodafone would apparently be glad to agree to except for tax implications. It is also interest in smaller US wireless competitor Alltel, which has been prepping itself for a sell-off by unloading non-core assets. Even Qwest is rumored to be in its sights.
6:34:33 PM 
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