(UPDATE: It's Official. Here's the press release from AT&T/SBC on the $67 billion transaction).
The Wall Street Journal reports that AT&T's (formerly known as SBC) $65 billion acquisition of BellSouth will likely be announced Monday. As the article explains:
"A combination between AT&T and BellSouth could have combined market capitalization of nearly $160 billion, making AT&T far larger than rival Verizon..."
"An AT&T-BellSouth deal would effectively cleave the nation's telecom services in two, each vertically integrated with a local phone operation, business services, and wireless unit..."
"Put together, the SBC territory would extend from California to Florida, north to Illinois and south to Texas. Combining the two companies' current market capitalizations, AT&T would have a market value approaching $150 billion, over 50% greater than Verizon."
Should the mega-deal pass regulatory muster, it should add some more spring to the step of AT&T CEO Edward "It's my Pipes" Whitacre (see earlier post on this).
As this New York Times article notes:
"The combined company would have more than $125 billion in sales, 70 million local-line phone customers and nearly 10 million broadband subscribers."
The Times article suggests the next possible chess move:
"A deal between AT&T and BellSouth could pressure Verizon to consider buying Qwest, the last of the four big Bell companies."
However, due partly to the current "Net Neutrality" debate, today's merger may get more scrutiny than previous deals. As the Journal elaborates:
"Although AT&T and Verizon's last mergers passed both FCC and Justice Department review with little major problems, the latest proposed merger may face more hurdles. Recent comments by AT&T and BellSouth executives about their intentions to explore new revenue streams from their high-speed Internet services by introducing two-tier or "premium" service for Internet content providers.
Concerns about those plans and the concept of "net neutrality," or ensuring that consumers have open access to all Internet sites and services and businesses do not find their content slowed, has become a major problems for the Bells in Washington."
So we'll see if all the King's reps will let Humpty Dumpty be put back together again.
What's partly driving this consolidation of course is the relentless pressure from the technology-driven forces on the pricing of every aspect of the telephone business, and the ability thereby of other industries like cable to compete with them.
The cable companies have been undergoing their version of a consolidation as well, although nothing AS dramatic as today's announcement by the telcos.
But it's early in the game. The irony is that despite all the consolidation in both the telco and cable camps, none of the players has the ability to create a single coast to coast national footprint, covering 100% of the country. i.e., the game is still about "you have your patch of the country and I have mine". Oligopolies still rule in most major parts of the country and on the wired side at least, most consumers still have only one choice for cable and one for telco.
The business most rationally constructed on the wireless side, since each of the wireless subsidiaries of the behemoths offer more or less a national footprint. Thus consumers have more national competitive choices: AT&T's Cingular vs. Verizon Wireless vs. T-Mobile vs. Sprint/Nextel.
In the near-term these moves could potentially paradoxically mean higher prices in certain product areas like broadband, business phone services and the like. But the longer-term trend should be more choices and lower prices, however glacially it may proceed because of the consolidation moves executed by the companies on both sides.
And longer term we may yet see a counter-trend to the current fad of creating giant vertically integrated companies that house both the wired AND the wireless businesses under one roof.
It's good for the politics of the business in question, where the eroding business on the wired side is off-set a bit by the growing business on the wireless side. And investors are going along with it as long as the net effect on growth is positive.
But at some point the net result is going likely to be negative, as pricing pressures on both fronts make the entity less appealing from an investor perspective.
Then we'll possibly have the companies split up again, likely along wired and wireless lines, especially as the wired side of the business invests greater sums to drive fiber to the home to reach mainstream critical mass. The tensions between the wired and wireless business models in one company will be at maximum levels then.
And Humpty Dumpty will likely fall again.
P.S. For those of you who are dizzy trying to keep up with the changes on AT&T splitting up and now coming together again, the Wall Street Journal has a helpful timeline to put things into perspective.
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