SBC-AT&T deal heralds major telco changes

SBC Communications' acquisition of AT&T, announced Monday, signals a new era for telecommunications, with converged communications services to come from what will be the largest company of its kind in the U.S., said analysts, who sprinkled talk of "history" and "irony" in with forecasts of continued industry consolidation.

The SBC-AT&T deal, along with whatever domino effect occurs, is the leading edge of major changes in telecommunications, with companies surviving by offering a range of services: local calling, long distance, Internet access, wireless and TV.

MCI and Sprint could be in play next, with BellSouth and Verizon Communications possible suitors, several analysts predicted. Network managers also may begin to consider SBC as a possibility for enterprise services, said Bryan Van Dussen, a Yankee Group telecommunications analyst. SBC undoubtedly will become well known globally as well, according to other observers.

Although the $16 billion stock deal isn't expected to clear all regulatory hurdles and necessary approvals until the first half of next year, analysts predicted that the proposed acquisition will set off a round of merger and acquisition mania in a market ripe for deals. The deal would create a formidable company, combining SBC's strong domestic and local telecommunications holdings, noteworthy hosted IP (Internet Protocol) communications platform and ambitious VOIP (voice over IP) plans with AT&T's long-distance, international footprint.

"The irony of a 'Baby Bell' acquiring AT&T cannot be overlooked, but there is also a compelling logic at play here," said Ovum Ltd. research director Mike Cansfield in comments sent by e-mail. "AT&T is a long distance and international company, SBC primarily a domestic and local business. Both are profitable, but having to fight hard in their respective markets. Join the two, cut out the overlaps and drive synergies ... and bigger will make better. Clearly SBC has decided -- rightly -- that size matters."

SBC and AT&T executives said Monday that the combined company will eventually reach $15 billion in cost savings. The company will be based in San Antonio, Texas, home of SBC. Almost half of the savings will occur from combining IT and networking operations and will be on top of the cost-cutting measures the companies individually have in place, executives said.

The acquisition is akin to a child moving an aged, ailing parent into the house and assuming late-life debt (about $6 billion of AT&T's net debt will be covered by SBC in this case). A U.S. federal judge in 1984 ordered the end of the AT&T telecommunications monopoly, splitting "Ma Bell" into eight Regional Bell Operating Companies, or "Baby Bells." The idea was to foster a thriving market for new services though competition and, eventually, a deregulated market.

The Baby Bells were to offer local phone services. It took them years to be able to offer long-distance service, because the Telecommunications Act of 1996 let them enter that market only on certain conditions. One condition was that competitors had to offer local service in Baby Bell home markets. AT&T and SBC became bitter rivals, meeting in courtrooms and regulatory hearings as they attempted to break into each other's markets.