Telecom Marriage Could Spur Others
AT&T; Inc.’s plan to acquire BellSouth Corp. fueled speculation Monday that competitors, namely Verizon and Qwest, would be forced to make deals of their own to keep up with a rejuvenated Ma Bell.
New York-based Verizon Communications Inc., which in January acquired MCI Inc., might be the first to make a move. One potential takeover target is Alltel Corp., a Little Rock, Ark.-based regional wireless carrier with 11 million subscribers.
Alltel’s rural cellular assets would compliment those of either Sprint Nextel Corp. or Verizon -- “all good reasons why Alltel could show up on Verizon’s radar,” wrote Banc of America Securities analyst David W. Barden in a research note issued Monday.
Investors agreed, sending shares of Alltel surging $2.29 to $66.61.
Verizon also may acquire the 45% of Verizon Wireless now owned by Britain’s Vodafone Group, which would position it to better compete with San Antonio-based AT&T.; By acquiring BellSouth of Atlanta, AT&T; would have full control of the largest U.S. wireless company, Cingular Wireless.
“The market may see Verizon as a motivated buyer that could come to Vodafone with a deal it can’t refuse,” Barden said.
Denver-based Qwest Communications International Inc. once supplied long-distance and data services to BellSouth.
AT&T; expects to save $200 million to $300 million next year in BellSouth’s out-of-region long-distance and data costs -- some of which doubtless will come at the expense of Qwest, noted Citigroup analyst Michael Rollins.
Qwest will probably look for acquisition targets in long-distance service -- exploring opportunities with telecommunications and cable operators, said analyst Ping Zhao of CreditSights.
In a conference call Monday with analysts, AT&T; Chief Operating Officer Randall Stephenson said he expected about 10,000 people would lose their jobs over the next three years as a result of the acquisition, on top of the 13,000 job cuts that occurred with the integration of SBC and AT&T.; The deal is expected to close within 12 months.
Most observers predict that the AT&T-BellSouth; marriage will clear federal regulatory hurdles within 10 months. Neither the Justice Department nor the Federal Communications Commission stood in the way of two previous telecommunications mergers: SBC’s acquisition of AT&T; and Verizon’s purchase of MCI. In those deals, regulators determined that the competitive landscape had changed dramatically since the 1984 breakup of the old AT&T; and that phone companies now competed with Internet phone services and cable companies for customers.
FCC Chairman Kevin J. Martin said Monday that the agency would review the $67.1-billion deal to determine whether it was in the best interest of customers.
“We will carefully weigh the information presented, examining any allegations of specific harm in individual markets and the potential benefits for the deployment of new services,” Martin said.
But Bruce Fein, an antitrust lawyer in Washington, predicted a quick approval. “This merger is likely to move more quickly through the regulatory review process than the Verizon merger or the AT&T-SBC; merger. The general analysis of markets has already been done and the competitive landscape grows more and more intense by the day.”
Several consumer groups Monday said they would ask federal regulators to reject the deal, saying it would reduce competition and drive up prices. They plan to argue that the acquisition would directly affect customers across the Southeastern U.S., where AT&T; would no longer compete with BellSouth for local or high-speed Internet service.
The cable industry similarly expressed qualms about the competitive threat posed by AT&T; and BellSouth -- which it notes has a market capitalization “greater than the entire cable industry,” but is nonetheless seeking reforms to speed its entry into home video.
“In the last decade, the Bell monopolies have all but wiped out their telephone competitors. They have swallowed their long-distance competitors and with the announcement of the AT&T-BellSouth; merger, they are on the verge of re-creating Ma Bell,” wrote Kyle McSlarrow, chief executive of the National Cable & Telecommunications Assn. “And only one competitor really stands in their way: the cable industry.”
In trading Monday, shares of AT&T; fell 97 cents to $27.02, BellSouth soared $3.05 to $34.51, Qwest gained 25 cents to $6.84, Verizon rose 15 cents to $33.73, Vodafone jumped 90 cents to $21.90 and Sprint Nextel closed up $1.10 at $25.30.
