Dawning of a new day in telecom as SBC acquires AT&T

SBC is acquiring AT&T for about $16 billion in a merger deal announced Monday.

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AT&T, once the giant of the telecommunications industry, is being bought by one of the Bell companies that it once spun off some 20 years ago.

But SBC is a far cry from the RBOC that AT&T was forced to divest in 1984. The company has built itself into the second largest LEC, after Verizon, with acquisitions including RBOCs Pacific Bell and Ameritech.

SBC’s revenue totaled $41 billion in 2004. The company has an extensive local customer base supporting 52 million lines across 13 states and employs 163,000. 

With AT&T’s continued revenue slide and its unceremonious exit of the traditional consumer voice business last year, it was becoming a more attractive acquisition target for one of the LECs. And with SBC’s history of acquisitions and reported on-again, off-again talks with AT&T since 1997, it is not shocking to industry observers that a deal is finally being announced.

SBC’s CEO Edward Whitacre will serve as chairman and CEO of the newly formed company while AT&T’s David Dorman will serve as president and sit on the company’s board.

One financial analyst expects Verizon, SBC’s rival, will not sit by and watch SBC gain much ground with enterprise users through its buy of AT&T. John Hodulik, financial analyst at UBS, expects Verizon to make a move for Sprint or maybe MCI. There is also the possibility Verizon or BellSouth could look to buy up Qwest. One thing is certain: This deal is likely to spawn more consolidation.

SBC says the merged company will be able to bring consumer and business services to market more quickly, more cost effectively, than they could separately. SBC and AT&T have already said they were planning layoffs this year. Both expect additional cuts once the companies merger, but no specific number was offered.

Although SBC says the acquisition will slow its revenue growth rate, the carrier says it expects to gain new revenue opportunities by selling its wireless services to AT&T business customers. That calls into question AT&T’s relatively new mobile virtual network operator (MVNO) deal with Sprint. In May AT&T inked a five-year contract to sell wireless services to its customers using Sprint’s network.

The deal is subject to FCC, Department of Justice, state and some international regulatory approval. The companies expect the merger to close in the first half of 2006.

And despite the fact that SBC is acquiring AT&T, Whitacre said in a printed statement that SBC values “the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world and it will certainly be part of the new company’s future.”

The new company’s headquarters will be in San Antonio, Texas, SBC’s current headquarters.

This story, "Dawning of a new day in telecom as SBC acquires AT&T" was originally published by The Edge.

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