Two years, five months and 16 days after President Clinton signed the Telecommunications Act of 1996, AT&T is -- finally -- a business-class, facilities-based local carrier.
The telecom giant last night closed its merger with competitive local exchange carrier Teleport Communications Group, Inc. Effective immediately, AT&T is adding all of Teleport's voice, data and Internet services to its offers for businesses nationwide.
The deal closed hours after the Federal Communications Commission approved it Thursday afternoon. That was the final regulatory hurdle for the merger, coming three months after Justice Department approval.
One of the FCC commissioners, Republican Harold Furchtgott-Roth, even issued a statement complaining that the FCC moved too slowly and shouldn't have even bothered doing its own antitrust analysis when the Justice Department had already done the work.
The merger was accomplished via a tax-free exchange of stock to Teleport shareholders, who will receive .943 of an AT&T share for each Teleport share. The final value of the deal was $11 billion, just about what it was when originally announced in January.
"Completion of this merger accelerates our entry into the $21 billion business local service market because we're reducing our dependence on the Bell companies for direct connections to business," said AT&T Chairman C. Michael Armstrong.
Teleport at least partially serves 83 metropolitan areas, but AT&T conceded that service provisioning for local and long-distance services won't be fully synchronized right off the bat. AT&T will begin by offering "any distance," or true end-to-end, service to businesses in six cities: New York, Chicago, Houston, Boston, Milwaukee and Fort Lauderdale. Thirty-four more cities are targeted for deployment by year-end.
AT&T's local blast-off comes after nearly 2 1/2 years of repeated failures in its local market entry strategy. Analysts attributed most of the delay to AT&T's previous emphasis on legal wrangling with the Bell companies rather than outright facilities builds or purchases, especially under former Chairman Robert Allen.
Surprisingly, the AT&T/Teleport deal drew only half-hearted opposition from other parties, compared to most telecom mergers. Regional Bell operating companies appeared to avoid criticizing the deal too harshly because they viewed AT&T's genuine entry into the local market as undercutting its long-standing arguments against Bell entry into long distance.
Indeed, the FCC is expected next month to issue a landmark proposal essentially deregulating RBOCs' data services, allowing them to build large-scale IP networks and roll out DSL local-loop deployments without the usual requirements to wholesale their facilities back to competitors at significant discounts.
Likewise, AT&T uncharacteristically went out of its way to avoid commenting on the pending merger of two of its major rivals - MCI Communications Corp. and WorldCom, Inc. - while the Teleport deal was pending. The opposition to the MCI/WorldCom merger was led instead by GTE Corp. and the Communications Workers of America. But even that opposition does not appear to be bearing fruit, as the FCC is considered certain to approve the MCI/WorldCom merger next month following MCI's recent sale of its Internet assets.
Next up for AT&T: Its pending merger with cable TV giant Tele-Communications, Inc. for residential local access. One competing CLEC executive expressed amazement this week that AT&T chose to take a chance on cable TV conversions for homes rather than buy up more business-class CLECs to add smaller cities to its local network. "With the amount they spent for TCI, they could have bought us and two other CLECs and provided local [business] service almost everywhere," he said.
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