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SBC Says ''We Will'' and Strikes a $16 Billion Purchase Agreement With AT&T
The local telecom giant will buy its former parent in the first half of 2006, pending regulatory approval.
Posted Feb 1, 2005
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AT&T has had a bumpy ride over the past 20 years. The once-dominant provider of the vast bulk of wireline communication in the United States shed its local carriers under regulatory pressure in the early 1980s, while AT&T was left to dominate corporate services and long distance. AT&T portrayed itself as a forward-looking innovator with an infamous "You Will" campaign promising leaps in everything from communications to shopping, then divested itself of its vaunted research facilities (now known as Lucent). To compensate AT&T went on an acquisition binge, buying up every cable and wireless asset that was not tied down, becoming the major shareholder in pioneering broadband ISP @Home, only to walk away from @Home in bankruptcy, sell its cable assets to Comcast, and spin off its cellular business only to be acquired by Cingular shortly thereafter. Revenues in the remaining corporate business have dropped considerably, and the company has effectively alienated its consumer base. Now, the country's first successful commercial telephone company is to become part of SBC, itself the conglomeration of some of the local phone companies divested by AT&T two decades ago. In a deal not expected to close until the first half of next year, SBC will acquire AT&T for $16 billion in stock and a one-time dividend. Assuming AT&Ts debt raises the cost of the purchase to $22 to $23 billion, a price the company had demanded when BellSouth entertained a takeover bid just two years ago. "They certainly were worth a lot more than that in the past, but they failed to adjust to changes in the industry, which is that the costs of long distance service was a fraction of the price and that left lots of scope for margin contraction," says Richard Talbot, managing director of RBC Capital Markets. "As a result, the [regional carriers] have had a more stable local business, and have been able to invest in wireless and maintain their customer connections." Despite its financial struggles AT&T is still the largest overall player in enterprise telecommunications and owns or operates a large portion of the world's telecommunications networks, making its smooth operation crucial to CRM professionals. Concerns that arose during Worldcom's bankruptcy of disruption to service may be misplaced in this instance. "I think SBC will be motivated to make sure that AT&T's integration goes as well as possible, " Talbot says. "Customers are going to see an AT&T with larger size and greater stability, but a lot will remain the same in terms of the network and service."
Industry and financial analysts have not reached a consensus on the wisdom of the deal, or on even if it can be consummated at all. Talbot expects that the legal challenges to an AT&T/SBC pairing will be considerably less than another attempt to merge local carriers. "On the regulatory side there is not a lot of scope for local-to-local consolidation, but on the local-to-long-distance side there is." He expects that MCI and Sprint will soon be engaged either in tight partnerships or outright ownership relationships with a competing local carrier, such as Qwest or BellSouth, in order to keep pace. Related articles: The Local Number Portability Hype Didn't Match Reality Cell Service Providers Have Work To Do
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