Sorting out the AT&T/BellSouth deal


AT&T made its move for BellSouth last week in an acquisition deal valued at $67 billion. There has been a lot of chatter about how the merger is in a sense recreating the monopolistic-AT&T of the 1980s. Here we try to address that question and some others.

Why are some saying the deal is reinventing Ma Bell?

As the new AT&T looks to add to its list of assets with its purchase of BellSouth it is patching together a company that looks similar to pre-1984 AT&T, but with a few big exceptions. Yes, over the years SBC has acquired two of the seven original Baby Bells, which were created post-divesture. In the 1990’s SBC bought both Pacific Bell and Ameritech. BellSouth will be the third. And of course SBC closed its merger deal with AT&T late last year, which brings the long-haul portion of pre-1984 AT&T back together with a bunch of the Bell companies.

But pre-1984 AT&T also included a large equipment manufacturing business AT&T Network Systems, now known as Lucent. And it also included other local assets, which post-divesture were known as Nynex and Bell Atlantic, now known as Verizon and US West, now known as Qwest Communications.

While we’re in a pro-big business regulatory environment, it’s hard to believe SBC will be allowed to purchase any of the other old AT&T assets. But I guess crazier things have happened.

Why does AT&T want to buy BellSouth?

For BellSouth’s access lines in nine southern states, its customers and network assets. And the deal also brings Cingular Wireless, currently a joint venture 60% owned by AT&T and 40% owned by BellSouth under AT&T’s total control. For more on what happens to Cingular check out our coverage.

How will Verizon, AT&T’s biggest competitor, respond?

There has been as much speculation about what Verizon’s next step might be as there has been about what AT&T’s acquisition of BellSouth means for the industry. Verizon, like AT&T doesn’t fully own its wireless division. Verizon Wireless is a joint venture between Vodafone and Verizon, but Verizon wants to change that. The company has publicly stated that it is trying to buy Vodafone’s 45% interest in the wireless unit. There is also speculation that Verizon might be trying to buy Alltel the fifth largest wireless service provider in the U.S. For more on Verizon’s next step, check out our story on the topic.

Should enterprise users be worried?

According to Network World columnist Johna Till Johnson, no. In the end, the deal will provide more stability in the telecom market than users have seen in the last several years, she says. Johnson points out that users are looking for a small handful of “large, stable providers” to support their telecom needs. This merger “brings that possibility one step closer to reality,” she says. More on Johnson’s analysis of the deal check out her column.

Besides stability, are there other pluses for business users?

Some analysts are predicting that AT&T will move faster on fixed-mobile convergence once the deal closes. “It may force a kind of (fixed-mobile convergence) arms race with Verizon,” says Tom Nolle, president at consulting firm CIMI.

What are potential drawbacks?

Some users are genuinely concerned that yet another acquisition means fewer service providers to chose from, which equals less competition and higher prices, says David Cheplick, telecommunications director for the Veterans of Foreign Affairs in Washington, D.C. But, it’s "one of those inevitable moves." For more user reaction from attendees at the VoiceCon conference check out our coverage.

Will the deal pass regulatory muster?

There is no reason to believe our current administration will put up any serious barriers that would prevent the close of the deal. Other recent mega-telecom deals such as Verizon’s acquisition of MCI and SBC’s acquisition of AT&T essentially sailed through with only minor provisions. Analysts are predicting the government will use the approval process as a way to establish some 'Net Neutrality rules. But we likely will not hear more about government provisions to approval for quite sometime. AT&T said it expects to close the deal in about a year. And one of the last steps before these deals close typically, is official government approval with provisions spelled out.

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