Critics question AT&T deal’s impact

AT&T’s announcement Sunday that it plans to acquire rival carrier BellSouth in a $67.1 billion stock deal may be good for the two companies, but some critics said the deal would take the communications marketplace a major step closer to the monopoly that existed before the mid-1980s.

With AT&T and Verizon Communications the only two heavyweight telecom carriers left in the market, large businesses will find it harder to split up their telecom and data contracts among multiple vendors, said Charlotte Yates, chief executive officer of Telwares Communications, a telecom research and consultancy.

The simplicity of bundled telecom and data services may be attractive to small and medium-sized businesses, but large businesses often have the in-house expertise to mix and match services from competing carriers and force them to compete on cost, she said.

“When you start combining services, you make it harder to separate the costs out,” Yates added. “It’s an opportunity to hide margin, to hide cost.”

Free Press, a media reform advocacy group, said the merger will bring the U.S. closer to a “cozy cartel” of only one telecom provider and one cable provider competing for telecom and data business in each market. The deal would be a “major blow to the endangered American ideal of competition and choice in the marketplace,” Ben Scott, policy director of Free Press said in a statement.

But Yates and other analysts said the deal makes sense from AT&T’s and BellSouth’s perspectives. AT&T was formed when SBC Communications completed its $16 billion acquisition of the old AT&T in November. AT&T will be able to cut wireline and mobile-phone traffic transport costs and combine advertising for AT&T, BellSouth and Cingular Wireless LLC, now jointly owned by AT&T and BellSouth, said AT&T officials and analysts.

“[The deal] is a realization that the world is changing and it’s changing faster and faster,” said Edward Whitacre Jr., AT&T’s chairman and chief executive officer, during a teleconference Monday. “The sooner we did this deal, the better off we would be.”

AT&T expects to lay off about 10,000 workers after the BellSouth acquisition, in addition to 13,000 jobs lost when SBC acquired AT&T, company officials said. AT&T officials project that the BellSouth acquisition will save a combined $2 billion a year from reduced operational costs, within two years of the merger’s completion.

The deal makes sense as telecom providers face competition from cable television providers offering their own VOIP (voice over Internet Protocol) service, said Jeff Kagan, a telecom analyst. “Now they are gearing up to fight new competitors, the cable television industry, for the complete bundle of services including telephone, television, wireless and Internet,” Kagan said. “Yesterday, we did business with both, but tomorrow, we will only have to choose one … for the same, big bundle of services.”

Telwares predicted AT&T’s major telecom competitor, Verizon, will attempt to acquire Qwest Communications International, a telecom provider focused on the Northwest and mountain states, as a way to keep AT&T from a near national footprint. AT&T officials said Monday they plan to look for ways to compete in Qwest and Verizon territory.

The U.S. government forced a break-up of the old AT&T in 1984, resulting in the creation of seven regional Bells primarily offering local phone service, along with long-distance provider AT&T. With the new AT&T Inc. swallowing up BellSouth, three of those eight companies will be left: AT&T, Qwest and Verizon, which completed its $8.5 billion acquisition of telecom rival MCI in January.

AT&T officials and analysts said they expect no major regulatory hurdles for the AT&T and BellSouth deal, even though some consumer groups raised concerns. “This [Bush] administration has been hands off, hands off, hands off,” said Ellen Daley, a telecom analyst with Forrester Research.

The deal should be a way for the two companies to save costs and to spread out the cost of rolling out services like IPTV, Daley said. BellSouth’s small-business customers, however, may see less effort focused on them in the short-term as the merged company focuses on large businesses, she said.