Merger Expected to Expand Services in Homes, Business
The merger of Pacific Telesis and SBC Communications--holding company of Texas-based Southwestern Bell--is the first of a wave of combinations among regional and local telephone companies that promises to expand access to advanced telecommunications services, whether in business or at home.
Decades from now, when the Information Age is a fully understood reality rather than a semi-myth, this merger will be seen as a milestone.
But meanwhile, what does it mean in the everyday world of business and consumers watching costs and paying phone bills? Here, the impact is less clear. It’s probable that both companies will seek to upgrade the services that they offer to customers--in California and other markets. These might well include more powerful telephone lines and access to the Internet, in which PacTel is acknowledged to lead the nation. The expansion of its market to 30 million customers could allow PacTel to hold down the cost of such high-tech services to individual customers.
SBC, a notoriously tightfisted outfit, might profit by offering PacTel’s technology in its home markets of Texas, Missouri, Kansas and Oklahoma. However, there is a question whether it will finance major additions to PacTel’s technology.
It’s not likely that telephone rates--regulated by the California Public Utilities Commission--will go up because of the merger. Nevertheless, short-term fears about yet another massive corporate merger were widespread Monday.
Potential competitors, and some analysts, were quick with warnings. Consumer choice of providers for local telephone service might be delayed, said Mark Rosenblum, A T & T’s vice president for law and public policy.
“This is not good for the consumer or the small company,” said Fritz Ringling, president of Network Dynamics, a New York consulting company. “It will create no synergies. It will just make them [the new company] better able to resist competition,” with stronger lobbying and more power over markets.
Meanwhile, there were broad anxieties about the impact on California of a merger that takes PacTel’s headquarters from San Francisco to San Antonio. “California’s congressional delegation backed the [recently passed federal] telecommunications law on grounds that it would help PacTel help business in this state,” said Michael Noll, professor of telecommunications at USC’s Annenberg School. “How does Gov. Wilson think this merger fulfills that expectation?”
One high-ranking state official discounted any threatening implications of PacTel being run from SBC corporate headquarters. Julie Meier Wright, state secretary for trade and commerce, said: “I tend to think that California should have no reason to be fearful, with 33 million customers and some of the most advanced telecommunications technology in the world, plus the state’s place as a gateway to the Pacific and Latin America.”
She also noted that “the headquarters of Pacific Bell, the telephone operating company, will be retained here [in California].”
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The merger is seen as a defensive move by the two regional Bell companies against a backdrop of telephone deregulation after passage of telecommunications reform legislation Feb. 8.
In combining, the two companies will eliminate duplicative departments--meaning some job losses in Texas and California--but also expand operations, giving them the ability to offer services cost-effectively and so compete with A T & T, MCI, Sprint and other companies and technologies now beginning to offer local telecommunication services in their home markets.
Indeed, in the short term, analysts see mergers reversing the effect of the A T & T breakup 12 years ago and bringing the world fewer telephone companies. “Telecommunications is a global business now, and these companies want to get bigger to protect themselves in competition with even larger outfits,” said Peter Bernstein, head of Infonautics Consulting, a New Jersey-based telecommunications research firm.
But in the long term, the acquisition of PacTel by SBC for $16.7 billion will be seen as only one event among many in the growth of a tremendous variety of communications by telephone and cable lines, satellites and wireless and personal communications services.
“Access to information is expanding greatly,” said one analyst, and in the long term, mere bigness won’t be enough to ensure success in the business.
That is the day, still a decade and more away, when new technologies such as computer networking systems and satellite delivery of telephone service will replace telephone switching systems.
Still, those advanced developments face technical obstacles, and it will be some years before they are truly commercial.
Meanwhile, telephone companies, such as PacTel and SBC, have switching systems that allow callers to reach relatives or customers instantly and clearly. And more important, they have the “human capital” of skilled technicians who can keep such systems humming.
In the short term, the merged company’s most important ambition will be to enter long distance markets and compete on the home turfs of A T & T, MCI and Sprint.
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There also is an international aspect to the merger in that Southwestern Bell, which owns 10% of TelMex, the Mexican telephone company, gains access to Asian and European markets through a tie-up with PacTel. And the California company strengthens its access to Latin American markets by the union with Southwestern Bell.
There will be more mergers to come, analysts predicted. Nynex and Bell Atlantic among the Baby Bells have already held preliminary merger discussions.
One expert predicted Monday that there would be a bidding contest for attractive territories of General Telephone & Electronics, which serves many markets in Southern California.
However, doubts and misgivings about the merger, especially about its effects on small businesses, were widespread. SBC was described as a “financially oriented” company with higher profit margins than PacTel, one consultant said. “If SBC brings pressure on PacTel to raise its profits, it could hurt efforts to develop ISDN [Integrated Service Digital Network] and Internet access service to small businesses in this state,” said William Davidson, a professor at USC and consultant at Mesa Research in Redondo Beach.
And Robert Gnaizda, a public interest lawyer in San Francisco, noted that “PacTel is ahead in terms of realizing the potential of minority and low-income communities for their business. We fear that Southwestern Bell’s chairman will impose that company’s policies rather than continue those of PacTel.”
Yet for every misgiving, analysts generally conceded that if the merged companies want to compete with long distance rivals and win a place ultimately in the new world of communications, they would have to bring valuable services to their customers at reasonable cost.
“As access to information becomes more plentiful, consumers will buy communications services from brand names they trust,” consultant Bernstein said. “Companies will have to work to earn that trust.”
Times staff writer Leslie Helm contributed to this story.
