SBC-AT&T Merger Would Require Wall Streets Patience

 
 
By Wayne Rash  |  Posted 2005-01-27 Email Print this article Print
 
 
 
 
 
 
 

Opinion: If SBC buys AT&T, the process of integrating the two companies could take years.

Right now, the question is whether SBC Communications will actually end up with its former parent, AT&T. The fact that a sale is being discussed is widely known, it seems, but right now theres nothing to indicate for sure that it will actually happen. Previous discussions to sell Ma Bell have gone down in flames. But that doesnt mean it wont happen this time, or if not now, then soon. "An AT&T acquisition is a virtual certainty," said Lisa Pierce, vice president at Forrester Research. Pierce said that while the talks between SBC and AT&T are at a sensitive stage, if SBC doesnt end up with AT&T, some other company will. "In theory, the synergies would be wonderful," she said, pointing out that AT&T has a highly developed and highly capable IP network already in place, as well as a global fiber-optic network that SBC could benefit from having.
But that doesnt mean there arent problems. For example, SBC is a collection of smaller baby Bells, all with differing infrastructure. The integration of those companies is still in the works, and SBC is missing some key network management capabilities. Adding AT&T to the mix would become a very complex, difficult process. More important, it wouldnt be fast.
"SBC has had some missteps deploying fiber," Pierce said. "The technology migration is a question." Pierce said the integration of the two companies would have a significant effect on the customers of both companies. "It will take a lot of human beings," Pierce said, noting that the customer-care expenses would be significant. Click here to read about SBCs plans for a set-top box with Web links. And she added that one of the first things Wall Street will expect the companies to do is have massive layoffs, which would work against the customer-service needs of the merged companies.
Of course, AT&T has already had its recent customer-care disaster, when its wireless division tried to implement number portability. That debacle so hurt the company that AT&T wireless ended up being sold to Cingular. A customer-service catastrophe of similar dimensions could have a similar effect on SBC. While it may not force a sale, it could certainly make the stock price tank. And this is where Wall Street enters the picture. The financial community is no doubt going to expect SBC to start showing the financial benefits of the merger in as little as six months. But its unlikely that the companies will be far enough along in that time. In fact, Pierce suspects that the integration of the companies could take as long as five years. "This is a very difficult executive leadership challenge," she said. Pierce said one primary task after the merger will be to lower expectations in the financial community so that they reflect reality. Without realistic expectations, the pressure because of lower values would add to pressure to lay off large numbers of employees, and that would erode the customer base, Pierce said. That in turn would cause the value of the merger to decline, while competitors would pick up market share and value. "Its going to require a lot of fortitude," Pierce predicted. While the companies clearly have a lot going for each other if they merge, creating a unified whole is not going to be quick or easy. How well it works is going to depend on the patience of the financial community—a group for which the concept of patience is only vaguely understood. If this sale goes through, and if the regulators approve it, its going to be a tough road. Check out eWEEK.coms for the latest news, reviews and analysis on mobile and wireless computing.
 
 
 
 
Wayne Rash Wayne Rash is a Senior Analyst for eWEEK Labs and runs the magazine's Washington Bureau. Prior to joining eWEEK as a Senior Writer on wireless technology, he was a Senior Contributing Editor and previously a Senior Analyst in the InfoWorld Test Center. He was also a reviewer for Federal Computer Week and Information Security Magazine. Previously, he ran the reviews and events departments at CMP's InternetWeek.

He is a retired naval officer, a former principal at American Management Systems and a long-time columnist for Byte Magazine. He is a regular contributor to Plane & Pilot Magazine and The Washington Post.
 
 
 
 
 
 
 

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