AT&T/BellSouth: Identifying winners, losers

AT&T’s announced plans to pick up BellSouth in a $67 billion merger ushers in a whole suite of questions for IT executives. Will the deal even go through? If it does, who wins, who loses, and why? And most significantly, how should this affect your short and long-term carrier negotiations strategies?

Let’s take them in order:

Will the deal go through? Probably. By previously signing off on the Verizon/MCI and AT&T/SBC deals, the Department of Justice has set a fairly firm precedent. That makes it pretty challenging to reverse course, particularly when the Justice Department has repeatedly gone on record saying that “new forms of competition” such as cable and wireless maintain the competitiveness of the telecom landscape. That said, look for the Justice Department and others to win concessions from the telcos as a condition for a deal. 'Net neutrality is the most logical sacrificial lamb (read on).

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AT&T’s announced plans to pick up BellSouth in a $67 billion merger ushers in a whole suite of questions for IT executives. Will the deal even go through? If it does, who wins, who loses, and why? And most significantly, how should this affect your short and long-term carrier negotiations strategies?

Let’s take them in order:

Will the deal go through? Probably. By previously signing off on the Verizon/MCI and AT&T/SBC deals, the Department of Justice has set a fairly firm precedent. That makes it pretty challenging to reverse course, particularly when the Justice Department has repeatedly gone on record saying that “new forms of competition” such as cable and wireless maintain the competitiveness of the telecom landscape. That said, look for the Justice Department and others to win concessions from the telcos as a condition for a deal. 'Net neutrality is the most logical sacrificial lamb (read on).

Who wins? Large enterprises have been wishing for more stability in the telecom market for the several years. I’ve spoken with dozens of IT executives at large firms who would prefer a handful of large, stable providers that can assume responsibility for delivering voice, video, and wireless traffic end-to-end, and are even willing to pay more for better service. The AT&T/BellSouth deal brings that possibility one step closer to reality.

Other winners? Proponents of so-called “'Net neutrality” just got a golden opportunity to push their agenda through. As I noted in a previous column, the “'Net neutrality” buzzword tends to oversimplify a complex issue -- but that’s beside the point. 'Net neutrality proponents can now pressure regulators to make the AT&T/BellSouth deal contingent upon 'Net neutrality -- and mark my words, the telcos will cave on this one.

Who loses? For starters, it’s hard to see how the deal offers much, if any, benefit to consumers — though in all fairness, consumers haven’t seen much true competitiveness for the past couple of years. The real issue will arise if the telcos use their reconstituted power to limit access to particular sites, or to prohibit certain kinds of traffic from their networks. And as I’ve said above, that will only happen if the 'Net neutrality folks fall asleep at the switch.

The deal also raises challenges (though not insurmountable ones) to alternative players like Masergy and MegaPath, for whom the ability to offer managed end-to-end services is a key differentiator. Finally, telecom equipment manufacturers have a more circumscribed base of customers - meaning they’ll need to seek customers elsewhere, particularly from the cable firms, though this may turn out to be a blessing in disguise.

What’s an IT executive to do? Keep issuing those matrix RFPs to every carrier who can participate. As you move through the negotiations cycle, make sure you nail down terms and conditions, particularly service-level agreements and technology refresh clauses. Make sure the final contract includes firm “out” clauses for failure to comply. And nurture relationships with cable companies and alternative carriers, to keep the increasingly powerful incumbents on their toes.

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