AT&T Acquisition Doesnt Bode Well for SMBs

AT&T's planned purchase of BellSouth may make the company more innovative and efficient, but SMBs will likely face higher prices and lose negotiating leverage.

AT&T is framing its planned acquisition of BellSouth as a way to become more innovative, nimble and efficient, but not all business customers may see direct benefits from the changes.

For companies in BellSouths territory, the loss of one of the two major network suppliers would mean a significant reduction in choices, but the competitive impact would vary depending on the size of the business customer, analysts said.

AT&T is pitching the acquisition, priced at $67.1 billion in stock, to Wall Street as a way to significantly boost revenue, in part by marketing AT&Ts large business services to BellSouths small and midsize business base.

While potentially a boon to AT&Ts investors, it may not bode so well for the SMBs.

SMBs with operations primarily in the southeast would likely see their negotiating leverage decline, and they could face rising prices as a result of the consolidation.

"AT&T might decide to give larger customers even greater price incentives to stay with them and make that up on the backs of smaller and midsized customers. The rich get richer," said Lisa Pierce, analyst with Forrester Research.

"My great fear has been unregulated duopoly. I do think were headed down this road."

The personnel layoffs that would result from the merger—AT&T has already said that it expects to cut 10,000 jobs after the consolidation—could also leave SMBs in a reduced position as their choices dwindle.

Since competition opened in the local markets in 1996, SMBs were a frequent target of the Bells rivals, who often promised more personalized service and customer care than the entrenched Bells, who increasingly focused on larger enterprises.

While customer care for the largest enterprises with the greatest buying clout would likely not be affected, the personnel turmoil could mean less attention to smaller businesses.

/zimages/6/28571.gifEFF sues AT&T for role in NSA eavesdropping. Click here to read more.

AT&T is heralding the acquisition as a way to establish greater financial, technical, research and development, network and marketing resources to serve consumers and large businesses, but it has not said how the SMB market would be better served.

The two carriers maintain that BellSouth is not a significant competitor with AT&T in the enterprise market, but without a merger, it likely would become one, analysts said.

Over time, the carriers would face a much harder time passing the Department of Justices antitrust analysis, according to Blair Levin, analyst with Stifel, Nicolaus & Company.

Large enterprises with headquarters in BellSouths territory may gain negotiating leverage with the merger because they would increase the volume of services they purchase from AT&T, Forresters Pierce said.

Enterprises with remote sites in BellSouths region could potentially receive tighter service level agreements once all of their sites are on the same network, she added.

According to AT&T officials, business customers would benefit from converged services and a single point of contact for both wireline and wireless offerings. Companies would no longer have to receive a separate bill from Cingular Wireless, which today is jointly owned by AT&T and BellSouth.

Based on last years approval of the acquisition of AT&T by SBC Communications, and the acquisition of MCI by Verizon Communications, analysts widely expect the Justice Department and the Federal Communications Commission to approve the deal with few conditions.

The Justice Department focused largely on the mergers impact on the business market and required that Verizon and SBC (renamed AT&T Inc.) divest lines to several hundred buildings in 19 cities where they otherwise would not face competition following the mergers.

Last year, the FCCs two Democratic commissioners persuaded FCC Chairman Kevin Martin to agree to some additional conditions, largely because one seat on the five-seat commission was empty, leaving Martin without a majority.

But Martin is expected to enjoy a Republican majority soon, following the anticipated Senate confirmation of Robert McDowell for the fifth seat on March 9.

/zimages/6/28571.gif Check out eWEEK.coms for the latest news, views and analysis on voice over IP and telephony.