Two multibillion-dollar telecom mergers are expected to clear their final federal hurdle today and be approved, with conditions, by the Federal Communications Commission. SBC Communications, which is buying AT&T, and Verizon, which is buying MCI, agreed to concessions aimed at promoting competition and preventing the companies from unfairly controlling Internet traffic, say people with knowledge of the matter. The SBC-AT&T and Verizon-MCI mergers are expected to close by early next year.
UPDATE: The FCC approved the $16 billion AT&T/SBC merger today along with Verizon’s $8.6 billion purchase of MCI. The FCC required the AT&T/SBC to offer high-speed Internet service without requiring customers to also subscribe to local telephone service for two years. They also agreed for two years to permit customers to surf anywhere they choose on the Internet and use any applications on it.
Given that we’ve entered a new era in telecom where the Internet rules, how would you describe your strategy now?
It’s still about scale and scope. It’s about owning the assets that connect customers. The assets that probably can’t be duplicated except maybe by the cable companies. We have that, Verizon has that, BellSouth (BLS ) has some of that. The cable companies have it. It’s the numbers of customers you can get to. So it’s scale and scope.
How much do you expect to compete against Verizon?
Well, a lot in wireless. They’re going to have essentially the same capabilities that Cingular [SBC's wireless joint venture with BellSouth] has in a lot of locations. So I would think Verizon is going to be a big competitor. I think the cable companies will be the biggest competitor across the footprint.
How concerned are you about Internet upstarts like Google (GOOG ), MSN, Vonage, and others?
How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?
The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!
What’s your approach to regulation? Explain, for example, the difference between you and Verizon in how you are approaching regulatory approval for Telco TV [digital-TV service offered by telecoms].
The cable companies have an agreement with the cities: They pay a percentage of their revenue for a franchise right to broadcast TV. We have a franchise in every city we operate in based on providing telephone service.
Now, all of a sudden, without any additional payment, the cable companies are putting telephone communication down their pipes and we’re putting TV signals. If you want us to get a franchise agreement for TV, then let’s make the cable companies get a franchise for telephony.
If cable can put telephone down their existing franchise I should be able to put TV down my franchise. It’s kind of a “what’s fair is fair” deal. I think it’s just common sense.
What if the regulators don’t agree?
Then there won’t be any competition — there will be a cable-TV monopoly.
Is it just me, or does Ed Whitacre’s hubris sound vaguely reminisent of Michael Armstrong. Remember him?
With AT&T and MCI in their pockets respectively, SBC and Verizon will instantly gain the ability to reach all 50 states. They’ll also be able to court business customers, touting global services that BellSouth can’t easily offer and aggressive prices it may not be able to match profitably.
Based in Atlanta, BellSouth sat out the merger dance of the 1990s. As a result, it still serves the same nine states that it did in 1984 when the AT&T phone monopoly was broken up by court decree. Back then, BellSouth was the largest of the Bells. Today it is among the smallest, with about $28 billion in revenue in 2004.
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Pyramid Research says telcos may be counting on IPTV to revitalize their businesses, but the competition they will face in the pay TV market will be expensive, relentless and possibly damaging. Telco’s Could be Left Behind in an IPTV Armageddon.
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