AT&T deal pressures Verizon to get bigger

Bundling of services has set off a revolution

MCI looms as possible target

Telecom Merger

February 01, 2005|By William Patalon III | William Patalon III,SUN STAFF

SBC Communications Inc.'s planned purchase of AT&T Corp. is the latest move in an industry obsessed with bringing "bundled" services to its customers, and puts pressure on rivals like Verizon Corp. to seek similar deals, experts said yesterday.

"If Verizon wants to be the dominant player in the Eastern U.S. market, they're going to have to get bigger," engineering acquisitions that fill holes in key parts of its business, said Lisa Pierce, a vice president and telecommunications-services analyst with Forrester Research, a consulting firm. The AT&T buyout "is the deal I had originally expected Verizon to be doing."

Deals like the one announced yesterday are part of the evolution that is blurring the boundaries between technologies so companies can bundle voice, data and video-streaming services.

As this unfolds, analysts believe consumers will stop distinguishing between their local telephone company, long-distance provider, Internet-access firm, and cable-TV service. The telecommunication companies that survive will have to offer most - if not all - of those services, and on one bill, experts said.

"It's the Holy Grail - voice, video and data," said Braden Cox, a technology-regulatory attorney with the Competitive Enterprise Institute in Washington. "These things are supposed to be happening all at once. It's how you get there that's the question."

When it finishes the deal - which could take as much as 20 months to bring about because of all the regulatory hurdles - SBC will have boosted its arsenal of capabilities, but may still need to do more, experts said.

By purchasing AT&T, SBC acquires a large roster of commercial clients - something it sorely lacks now, analysts said.

Until this point, "we'd taken baby steps" in that commercial business, said SBC spokesman Larry Solomon.

Corporate customers seeking voice, data and video services weren't likely to sign on with SBC because the company lacked the global data network needed to provide those services seamlessly, analysts said.

With AT&T, SBC gets the customers, the network, and the brand name that should give it some marketing firepower, experts said.

Verizon currently is a major player in Maryland thanks to its local and wireless telephone businesses. It also is rolling out a cellular service with the ability to receive high-speed video, an offering analysts said opens the door for a host of wireless Internet services.

And the company has invested hundreds of millions of dollars in its cellular and fiber-optic networks, said Gene Walton, president of Walton Holdings, a New York investment-research firm.

But Verizon may have to look at a bid for rival MCI Corp. to plug holes in its commercial enterprise business, some analysts said. The company missed out on an opportunity by not going after AT&T for itself, said Forrester's Pierce.

Verizon declined comment yesterday.

Analysts said Comcast Corp. also is well-positioned for this evolution. The dominant cable provider in Maryland, Comcast has spent the past few years building its network, over which it ultimately will offer standard cable TV services, Internet access and telephony - a plan it announced earlier in January.

It hopes to have this voice over Internet, or VoIP, service available within 18 months in almost all its markets, the company said.

That "already aggressive" rollout schedule required no adjustments - despite the news of the SBC-AT&T deal, said Kirstie Durr, a Comcast spokeswoman.

While some opponents to the consolidation sweeping through the telecom sector fear higher prices, most analysts said these deals will prove good for consumers.

The reason: They aren't reducing competition, but rather are paving the way for the next generation of services, which will only happen if these deals are permitted to run their course, said Steve Titch, a senior fellow for technology issues at the Heartland Institute.

Titch said regulators should not stand in the way of this progress because it likely will lead to enhanced services.

"Regulators need to calm down," he said.

AT&T Corp.

Some key features of AT&T Corp.:

Business segments: Long distance, Internet, and voice and data services.

Home: Bedminster, N.J.

Size: $30.5 billion in revenue in 2004.

U.S. territory: National.

Financials: For all of 2004, AT&T reported a net loss of $6.11 billion, or $7.68 per share, including $12.8 billion in charges for asset write-downs and other restructuring moves.

Employees: 61,600 worldwide as of 2003.

What it means for consumers: If you're using AT&T long distance at home, you can keep them as your long-distance provider. AT&T is letting that business dwindle, but SBC has no plans to change that policy.

AT&T said last summer that it would stop advertising to consumers, a marked change from the days when it would send $75 checks to homes to entice consumers to drop competitors, such as Sprint Corp., and return to AT&T.

Source: Company figures, statements

SBC Communications

Some key features of SBC Communications Inc.:

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