AT&T; to Buy BellSouth for $67 Billion
Telephone giant AT&T; Inc. said Sunday that it agreed to buy BellSouth Corp. for $67 billion in stock in a deal that would make AT&T; the dominant carrier in 22 states, rekindling fears of a new Ma Bell monopoly.
If the transaction is completed, the seven regional Baby Bell companies created in the government’s 1984 breakup of AT&T; Corp. would be reduced to three. Industry analysts predicted that more mergers in telecommunications probably would follow.
The proposed marriage of AT&T; and BellSouth, the nation’s largest and third-largest phone companies, was driven largely by their joint ownership of Cingular Wireless. That mobile phone company and all of BellSouth’s businesses would be renamed and folded into AT&T.;
The current AT&T; is the former SBC Communications Inc., the San Antonio company that provides most phone service in California. SBC adopted the AT&T; name after it acquired its former parent company in November.
AT&T; and BellSouth said their combination -- which will require approval by shareholders and the federal government -- would save nearly $18 billion in costs and result in an unspecified number of layoffs. The companies employ more than 250,000 people altogether and have nearly 70 million phone lines in operation.
The deal brought immediate protest from consumer groups and others who think the old AT&T; monopoly -- which ruled the nation’s phones until the forced breakup -- is being reconstituted.
“This is a devastating blow to the consumer,” said Gene Kimmelman, policy director at Consumers Union, publisher of Consumer Reports magazine. “This one will lead to the end of the era of falling prices for telephone and cellphone service.”
Consumers Union and Consumer Federation of America said they would ask the Justice Department to block the acquisition. If the deal is approved, Kimmelman said, regulators should require the sale of Cingular.
The consumer groups also worried that the combination would leave Baby Bell companies AT&T; and Verizon Communications Inc. with the vast majority of local and long-distance customers; a majority of wireless subscribers; and, more important, most of the high-speed digital subscriber lines that many competitors use to deliver such services as Internet phone calls and broadband television.
The third Baby Bell, Qwest Communications International Inc. in Denver, would be dwarfed by the combined AT&T; and BellSouth. Qwest serves the sparsely populated Western region outside of California.
“Telecommunications has now gone from a regulated monopoly to an unregulated duopoly with just two major players,” said the research director of the Consumer Federation of America, Mark Cooper. “Consumers know that is not enough competition to lower their prices and drive innovation.”
Despite such concerns, some industry experts see no major hurdles to completing the deal, particularly given that four major telecommunications takeovers in the last 18 months sailed through antitrust reviews with few conditions imposed.
“There will be a lot of people expressing a great deal of concern, but when the Department of Justice and the Federal Communications Commission do their analysis, they will approve the merger with limited conditions,” said analyst Blair Levin at Stifel, Nicolaus & Co. Inc. “I don’t see how their analysis changes in any way.”
Among the prior combinations were Verizon’s acquisition of MCI Inc. and SBC’s purchase of AT&T; Corp., both of which wiped out the major long-distance carriers and chief local phone competitors to the regional Bells.
AT&T; Chairman Edward E. Whitacre Jr., 64, would remain as chairman and chief executive of the combined AT&T; and BellSouth. “The merger
BellSouth Chairman F. Duane Ackerman said technological changes that helped consumers manage multiple communications services were “shaping a new competitive dynamic and creating tremendous opportunity.”
“We’re creating a company with much better capabilities to seize these opportunities,” said Ackerman, who would serve as BellSouth region president during a transition before leaving.
Responding to Sunday’s announcement, Verizon spokesman Eric W. Rabe said: “From our point of view, anything that provides a stronger competitor to cable [TV] is welcome. Meanwhile, Verizon’s business plan remains unchanged.” He would not discuss possible takeovers.
Whitacre has long coveted BellSouth, openly remarking that he would like to buy it someday. Talks over the last few months heated up in the last three weeks as the companies took the proposed deal to major investors for their blessings.
The BellSouth acquisition is expected to create savings, starting with $2 billion in 2008 and rising to $3 billion annually by 2010. Most of the savings would come from layoffs and reduced costs at corporate staff levels and in marketing and promotions, particularly at Cingular.
Under the terms of the deal, BellSouth shareholders would receive 1.325 shares of AT&T; stock for every BellSouth share. That amounts to $37.09 a share, a total of $67 billion, based on Friday’s closing price of $27.99 for AT&T.; BellSouth shareholders would end up owning 38% of AT&T.;
AT&T; spokesman Larry Solomon said the companies hoped to get Justice and FCC approvals and favorable votes from shareholders to complete the deal within a year.
When SBC chose to operate under the AT&T; name, Whitacre acknowledged that SBC was hardly known outside California and 12 other states where it is dominant. One reason, he said, was that it marketed its wireless operation, 60% owned by SBC and 40% by BellSouth, under a different name, Cingular.
Verizon, on the other hand, has become well known nationally largely because it has been able to sell its cellular joint venture as Verizon Wireless. Verizon owns 55% of the venture; Vodafone Group Plc owns the rest. Verizon has said it wants to buy Vodafone out, but that decision is up to the British firm.
AT&T; earlier this year had announced plans to offer AT&T-branded; cellphone service to corporations in the nine Southeastern states covered by BellSouth.
Analyst Jessica Zufolo of Medley Global Advisors said the prospect that one company would carve into another’s corporate markets also put pressure on them to join forces. “The whole idea is to bring Cingular under one roof and strengthen their hand against further consolidation that is expected in the industry,” she said.
Zufolo predicted a second wave of smaller telecom consolidations after 18 months of major combinations among wireless and wireline companies.
She said that Verizon Wireless, for instance, was rumored to be interested in buying Alltel Corp., which boasts a sizable wireless market in BellSouth’s Southeast area.
A combined AT&T-BellSouth; also would boost efforts to roll out their fiber-optic television service more quickly and compete with cable and satellite TV.
“If you want to be very competitive in pay television, you need a big footprint,” said industry consultant Ford Cavallari of Adventis Corp.
Cavallari understood that the deal might appear as if Ma Bell were being re-created. “But while it could look like we’re going back to the future, several competitive markets have been created since 1984,” Cavallari said.
Internet telephone service, including Skype, Vonage and AT&T;’s own CallVantage, has proliferated, growing from 1.3 million subscribers to 4.4 million in the last year.
In addition, the cellular market remains competitive, Cavallari said, even though Cingular acquired the independently owned AT&T; Wireless and Sprint Corp. bought Nextel Communications Inc. in the last 18 months.
And new technologies, such as high-speed wireless and broadband over power lines, soon will be providing fast pipes into the home, he said.
“What used to be a fairly stable market, and was a monopoly market, is undergoing a substantial change,” he said.
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The players
A look at the parties in AT&T; Inc.’s planned $67-billion deal for BellSouth Corp. (figures are as of the end of 2005):
AT&T; Inc.
Headquarters: San Antonio
Employees: 189,950
2005 revenue: $43.9 billion
2005 net income: $4.8 billion
Phone lines in service: 49.4 million
Main local service states: Arkansas, California, Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio, Oklahoma, Texas and Wisconsin
BellSouth Corp.
Headquarters: Atlanta
Employees: 63,066
2005 revenue: $20.5 billion
2005 net income: $3.3 billion
Phone lines in service: 20 million
Main local service states: Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee
Cingular Wireless LLC
AT&T; owns 60% of the cellphone carrier and BellSouth 40%.
Headquarters: Atlanta
2005 revenue: $30.6 billion (not included in AT&T; or BellSouth revenue)
2005 net income: $333 million
Customers: 54.1 million
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From Associated Press
Los Angeles Times
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History of Ma Bell
AT&T; Inc.’s acquisition of BellSouth Corp. would bring more than half of the traditional telephone business back under one roof. The history of Ma Bell dates back more than 125 years to the invention of the telephone.
1877: The Bell Telephone Co. is formed by Alexander Graham Bell, the inventor of the telephone, and two other men.
1939: Bell Telephone, now known as the American Telephone & Telegraph Co., controls 83% of U.S. telephones and 98% of long-distance telephone lines, and it manufactures 90% of all U.S. phone equipment.
1949: Justice Department sues AT&T; under the Sherman Antitrust Act.
1974: U.S. government files an antitrust suit against AT&T; to break up the Bell System.
1984: After AT&T; agrees in 1982 to divest itself of 22 of its regional companies, the companies are converted into seven regional phone companies, which become known as Baby Bells.
1995: AT&T; says it will split into three publicly traded companies: Lucent Technologies, a systems and equipment company; NCR, a computer company; and AT&T;, which will retain the communications services business.
July 2004: AT&T; announces it will no longer market its services to residential customers, saying that without rules mandating local access, it cannot profitably sell long-distance service.
January 2005: SBC Communications, the second-largest U.S. phone company and a Baby Bell, agrees to buy AT&T; for about $16 billion. When the deal closes in November, SBC takes the AT&T; name.
March 5, 2006: AT&T; announces plans to acquire BellSouth Corp., its partner in the Cingular Wireless venture and the No. 3 U.S. local phone company, for about $67 billion.
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From Reuters
Los Angeles Times
