Washington – AT&T Inc. announced plans Sunday to buy BellSouth Corp. for about $67 billion in stock in a deal that will reassemble large parts of the old “Ma Bell” local-telephone monopoly.
But it is likely to win regulatory approval because of growing competition from cellphone, cable and Internet telephone companies.
The merger would drastically expand San Antonio-based AT&T, which is already the largest phone company in the country, by extending its local phone service into 22 states – Colorado isn’t among them – and giving it full control of Cingular Wireless, the largest cellphone company in the nation.
The deal, announced by the two companies Sunday, would be the one of the largest telecom mergers in history. The new company would be a behemoth with more than 317,000 employees, 70.9 million local land lines, 54 million cellphone subscribers and 9.9 million broadband Internet users.
Taking control of Cingular, currently run as a joint venture of AT&T and BellSouth, was one of AT&T’s main reasons for the deal and would give it free rein to exploit one of the fastest-growing parts of the industry – the huge demand for wireless services, company officials have said.
The merger illustrates how the U.S. phone industry has been transformed since the government broke up AT&T in 1984, splitting its long-distance operations from the seven “Baby Bells” that offered local-phone service across most of the country.
In recent years, the number of local-telephone landlines has steadily shrunk as people have switched to wireless and, albeit in relatively small numbers, have begun to buy phone service from cable companies and voice-over- Internet-protocol providers.
The big telecom companies are increasingly vying with cable companies to offer a triple play of services – combining phone service with cable TV and high-speed Internet access in “bundles” that cost customers less than if they bought each part separately. By adding mobile phone service, phone companies would be able to offer a “quadruple play.”
AT&T chairman and chief executive Edward Whitacre, who will become head of the merged company, said he planned to market Cingular under the AT&T name and was confident the deal would pass muster with federal regulators.
“Competition is everywhere. We have to be efficient, we have to bring good value to consumers, and in this case, that translates to going from three networks – BellSouth’s, Cingular’s and ours – to one,” Whitacre said. “It’s an efficiency move.”
Gene Kimmelman, senior policy director at Consumers Union, decried the merger, saying it would push prices higher.
“This will end the era of falling long-distance and cellphone prices, leaving consumers paying inflated charges due to lack of competition,” he said.
Under the deal, BellSouth shareholders will receive 1.325 shares of AT&T stock for each BellSouth share in a transaction the companies valued at about $67 billion. Based on AT&T’s closing stock price Friday, BellSouth shareholders’ payment would be valued at $37.09, a 17.9 percent premium over BellSouth’s closing price Friday.
Analysts said they thought the deal would easily win approval from federal regulators.
Blair Levin, a regulatory analyst with Stifel, Nicolaus & Co., said it was likely to be approved without major conditions by the Justice Department and Federal Communications Commission, noting that both allowed the recent mergers of AT&T Corp. and SBC Communications Inc., which took the AT&T name, and of Verizon Communications Inc. and MCI Inc., which assumed the Verizon name.
AT&T and BellSouth do not compete significantly with each other in local-phone service; BellSouth has largely kept to its nine-state region, which stretches from North Carolina to Louisiana, and AT&T to its 13-state region that runs from Texas up through the Midwest and also includes California and Nevada.
Nor do they compete on mobile phone service, given that Cingular, which is 60 percent owned by AT&T and 40 percent by BellSouth, is run as a joint venture.
The two companies estimated the net present value of synergies at nearly $18 billion and they said they expected the merger to close within about a year.
WHAT HAPPENED
AT&T reached a deal to acquire BellSouth, which would create a company with 70.9 million land-line customers, 54 million cellphone users and 9.9 million broadband subscribers.
WHAT IT MEANS
All but two of the former Baby Bells – Qwest and Verizon – are back under the Ma Bell umbrella.
WHAT’S AHEAD
The Cingular brand, already jointly owned by AT&T and BellSouth, will be phased out in favor of the AT&T brand.
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