CHICAGO, Feb. 4 (UPI) -- The massive merger of SBC and AT&T may portend momentous changes in the way consumers and businesses procure wireless fidelity and Internet telephone services, among other offerings -- but only if regulators and the U.S. Congress approve the $16 billion proposal.
AT&T represents the foundation of the telecommunications industry. Incorporated in 1885 as a subsidiary of American Bell, the company started in 1875 by Alexander Graham Bell, it eventually and for a time became the world's largest corporation and the first company to launch a commercial telecommunications satellite, Telstar 1, in 1962.
Now tiny compared to its once gigantic size, AT&T's acquisition by SBC -- formerly its subsidiary Southwestern Bell -- could prove quite beneficial for today's telecom consumers, experts told UPI's Wireless World, though it definitely is not what policymakers foresaw a decade ago when they passed landmark telephone-regulation reform.
"The crafters of the 1996 Telecom Act certainly didn't envision that less than 10 years after the act was signed that the largest long-distance provider would be merging with one of the Baby Bells," said Robert D. Atkinson, director of the technology and new economy project at the Progressive Policy Institute, an arm of the Democratic Leadership Council in Washington, D.C. "Just the opposite was supposed to happen, with the long-distance and local telcos slugging it out in each other's markets."
New technologies, from e-mail to wireless and Internet telephony, however, cut dramatically into the traditional telecom market, upending the forecasters' vision of the future.
"Things are vastly different now," said Atkinson, author of the book, "The Past and Future of America's Economy: Long Waves of Innovation that Drive Cycles of Growth" (Edward Elgar, 2005).
A number of technology markets -- and customer niches -- probably will feel the impact of the merger.
The corporate market is where AT&T is especially strong, and where the merger will pressure competitors the most -- at least initially.
"The corporate and business markets might be concerned about the deal, not because SBC is huge there, but because of the potential for (the company) getting stronger," said Andre Barlow, an attorney with the Washington firm Sheppard, Mullin, Richter & Hampton LLP. "From the consumer point of view, they could view it as losing something."
The consumer long-distance market likely will see changes if the merger moves forward.
"MCI and Sprint are also players there, and other firms have been getting into long distance, as has SBC," Barlow said, "but this deal makes it easier for AT&T to get a strong foothold" in the residential long-distance market.
Local telephone service likewise could be changed -- perhaps dramatically.
"Some of the territories of AT&T and SBC will probably overlap," Barlow continued. "The antitrust enforcers will probably be concerned about that. There will probably have to be divestitures before the deal goes through."
The biggest impact of all, however, may come for Internet telephony -- wireless and wired -- which is expected to get a big boost, due to the deal.
"I expect a lot of developments in (voice over Internet protocol)," said Barlow. "AT&T is pretty big with the Internet backbone. They are a major player. One customer might have wireless access, another might have a cable modem, but they all have to communicate via the Internet backbone."
The value of the $16 billion purchase to SBC must be measured beyond the mere physical network and some 30 million long-distance customers of AT&T, telecom experts said.
"The AT&T brand name and 'Death Star' logo still have significant value in corporate America and are unlikely to go away as a result of this deal," said Robert E. Yadon, director of the Applied Research Institute's Center for Information and Communications Sciences at Ball State University in Muncie, Ind. "What will evolve is a new, streamlined firm that, after consolidation and restructuring, will offer consumers and business customers expanded service from under a single umbrella and help stem the loss of revenue to newer services like Internet telephone."
The deal probably will not be consummated for at least a year, given all of the issues regulators may have to examine.
"Here's the issue: How long is it going to take?" asked Robert Doyle, an attorney in Washington also with Sheppard, Mullin. "Will it get done? What will it take to get it done? I think it is going to take at least nine months to a year to get done. Probably longer. There will be divestitures in at least two markets."
The reason for the lengthy period before the merger can be completed forward is several regulators need to look at the deal. The Federal Communications Commission and the Department of Justice will have to examine the proposal, as established by law and precedent.
"The U.S. Congress will play a role here, too," Doyle said. "The House side and the Senate side have telecommunications committees that are going to be overlooking this. They've already come out and raised concerns over this. There will be oversight -- and a detailed investigation."
The deal, if approved, will create one of the largest telecommunications companies in the nation, a corporate marriage that may be more than just one of those CEO-ego-driven deals of the past that seemingly were doomed from the start.
"Consumer demand is driving mergers like this," said Steve Titch, senior fellow for technology issues at the Heartland Institute, a libertarian think tank in Chicago. "If we look at the consumer technology market as a whole, we start to see the value that carriers can deliver if allowed to completely integrate their infrastructure and services and improve the consumer telecom experience, which at times can still be immensely frustrating."
Titch said the merger may benefit both consumers and the entire American technology industry, because it is responding to changes in the way consumers and businesses use telecom services. Distinctions between local and long distance calls, over-wire and wireless, and voice and data do not really exist for many consumers, he explained.
There is at least one downside to the merger: AT&T and SBC -- in statements to the media -- have disclosed they will be eliminating a total of nearly 13,000 jobs.
"Ultimately, though, this will be good for both companies," said Dick Martin, the author of "Tough Calls: AT&T and the Hard Lessons Learned from the Telecom Wars" (AMACOM, November 2004). "They are going to go through some pain in the early years, but SBC has made a smart acquisition. SBC's local market has been flat-to-declining for some time. This deal gives them access to the corporate-enterprise market. AT&T, meantime, needs to make investments. Long-distance service has become a commodity, like selling potatoes. They need to invest in security, network management -- that kind of thing. That takes money. SBC gives them those tremendous resources."
New technology developments likely will spring from the deal, too, as new investment money is made available from SBC for emerging AT&T projects, experts said.
"AT&T has been looking at WiMax technology and experimenting with it," Martin said, referring to new long-range wireless networks. "They have some capabilities there. There's a question of whether they will go through they had now for reselling Sprint's wireless services."
For those who may remember the glory days of Ma Bell, the news of the merger is simply the latest move in a long series of restructurings. Yadon called it the "final step in disemboweling the telecom giant." More than 20 years ago, he recalled, a federal court ordered the break-up of the Bell telephone system monopoly. By 1996, AT&T had spun-off local phone companies, sold off Bell Laboratories in 1996, which became part of Lucent, and sold AT&T Broadband to Comcast, the cable company, just a few years ago. Even more recently, AT&T spun off its own wireless division to Cingular.
Federal regulators probably will try to ensure new technologies -- from WiFi to WiMax and other wireless products -- continue to be made available to consumers as a condition of approving the merger.
"The issue now is less about whether AT&T and SBC merge," Atkinson said, "and more about making sure (in) going forward that local consumers continue to be able to buy Internet telephony services from any provider that offers it and not be limited to offerings from only their broadband provider."
Look for other mergers to follow in the wake of this one, experts said. "Expect others in the field, like Verizon, to take a serious look at acquiring other long distance firms," Yadon said.
According to a statement from SBC, AT&T shareholders will receive 0.77942 SBC shares for each AT&T share held, and they will receive a special dividend of $1.30 per share.
Executives at AT&T have a huge financial incentive to ensure the deal goes through, according to a filing with the Securities and Exchange Commission. The company will owe SBC a $560 million "termination fee" if the deal fails.
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Gene Koprowski is a 2004 Winner of a Lilly Foundation Award for journalism for this column for United Press International. He covers communications technologies for UPI Science News. E-mail: [email protected]
