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Within minutes of final FCC approval of the merger between telecom giants AT&T and BellSouth, the wheels of change began turning to create a 22-state communications company that takes a big step in reassembling the old Ma Bell of decades past. The huge telecom monopoly broken up by federal edict years ago was again starting to stir.
But the world today is vastly different the one inhabited by the AT&T of yore. Todays biggest prize is Americas biggest wireless carrier, Cingular Wireless, until this week a joint property of AT&T and BellSouth. Now its completely owned by AT&T, and will soon be identified as such.
Of course theres a lot more to such a merger than a wireless company, despite the importance of Cingular. There are millions of wire line customers, a vast switching infrastructure, long distance services, and a wide variety of business services. For company owners, the overall picture is what matters. But still, wireless service was the biggest part of the big picture.
“The principle reason for the merger was to have complete control over Cingular,” said Dave Passmore, research director of the Burton Group. Passmore said that AT&T is looking toward the future, getting ready to provide tomorrows offerings when theyre needed.
“More and more communications was going wireless, and the ability to sell service bundles to the enterprise, including a wireless component, was critically important to AT&T,” Passmore said. “I think the valuation of BellSouth reflected as much the valuation of Cingular as anything else,” he added.
Passmore said that a key strategy will be to offer bundled services to business customers that couldnt be offered in the past.
“What I think it means is that enterprises will now see greater bundling from AT&T with wireless and wire line,” Passmore said. “They couldnt do that before. They want to eliminate the Cingular brand and sell those services under the AT&T moniker.”
However, theres a lot more to a telecom company than even wireless and wire line services.
“What were now able to offer with this combined Cingular and AT&T includes wire line, long distance, Internet, broadband, data networking, and now a complete portfolio of wireless voice and data services,” said AT&T vice president of business marketing John Regan.
“Were now able to leverage the assets from AT&T such as the global IP network and security and hosting services and bring in more integrated play as it relates to wireless and wire line services,” Regan said.
Regan said that while its too early to know exactly what new business offerings AT&T will have, hes certain that it will include integrated management portfolios for products such as managed security, remote backup and storage, and wired-wireless integration. “Well look to expand that because Cingular is now part of the family,” Regan said.
Regan said that for businesses, integration is key. “Youll see even tighter integration. Were able today to offer a bundled solution in a single bill at a single price point,” he said.
He said that in addition to offering new integrated services, AT&T is planning to continue its global communications offerings, where the company is already a major player. He said that while AT&T already offers services in every state in the United States, itll be able to do even more in states where it is resident, meaning in places where the company provides the landline and wireless services in addition.
Business as Usual
However, that doesnt mean that customers should expect instant changes, especially in their wireless services.
“Its business as usual at Cingular,” said Cingular spokesperson Mark Siegel. “We still are the nations largest wireless company, but now we have a single owner. It makes decision making faster and easier,” he said. “Because of what AT&T is doing, well be able to offer converged services, which will be an enormous advantage to our customers.”
Eventually, change will come. “But over time the Cingular name and brand will be folded into and subsumed by the AT&T brand,” Siegel said, “Its going to take place gradually.”
“Bundled packages will happen over time,” Siegel explained. “Youll see the distinction between wireless and wire line disappear over time.”
“Clearly consolidation is going on in the marketplace,” said Jack Gold, founder and principal analyst for J. Gold Associates. Gold said that while the merger does mean that AT&T will be able to provide a wider suite of services, hes not sure the change will do a lot to help enterprise users.
“These guys are so focused in providing all of these services to consumers that its highly likely that the enterprise customer is not going to truly benefit from these guys coming together,” Gold said. He added that the merger will add huge expenses and corporate debt, much of it devoted to “getting the companies together to deliver video to teenagers.”
In addition, Gold said that the merger reduces competition in some areas. “In telecom its going to be a two-horse race now for the most part,” Gold said. “The fewer options you have, generally prices go up.” Gold also said that with reduced competition, he would expect the level of service to go down.
But the news isnt all negative. According to Gold, a lot depends on who you are. “For smaller players, I think they will actually have more options. Most of those folks arent interested in getting dedicated T1 lines,” he said, noting that the larger company will mean richer offerings in many areas.
Regan said that increasing the offerings to small businesses is an important part of AT&Ts strategy. “Small business is fueling this economy, and we want to help that business,” Regan said. “Were to looking to expand on that to bring more value to small business customers,” he said.
Passmore, however, said he thinks the effects of the merger will run deeper than simply offering better bundling deals to business.
“It provides an opportunity for greater fixed mobile convergence,” he said, noting that the merger could hasten the arrival of the call control necessary for combined cellular and WiFi handsets, for example.
Passmore also thinks that AT&T will have to make its bundled offerings attractive to business, or nobody will buy them. But he said that as long as there is competition, AT&T will have to offer a lot.
“Verizon is the target for this. Were headed to a two-carrier market for all of this with AT&T and Verizon,” he said. Passmore said that he thinks Sprint and T-Mobile will matter less to business because of their relative size. “Itll take years for T-Mobile to catch up,” Passmore said.
Passmore said that over the long run, businesses have more to worry about. He doubts, for example, that AT&T will do a lot to preserve net neutrality.
“The net neutrality agreement that they made as part of the merger has huge loopholes in it,” he said.
However, Passmore said that he doesnt think AT&T will make major changes in Internet access. “I dont think theyve decided that the revenue is worth the hue and cry from the blogosphere and the customers,” he said.
“I think overall its anti-competitive in that it reduces the number of players that exist, especially if youre in BellSouth territory,” Passmore said. “In the long term its not a good thing for customers. Were seeing the emergence of two 800-pound gorillas for telecommunication services.”
“Customers do benefit,” Regan said. “We are already bundling,” he pointed out, explaining that the merger of the two companies will offer more to businesses in the long run than either company could have offered without it.
“The more you bundle, the more you buy, the more you save. You can expect more of that approach to continue,” he said.