Toby Jorrin  /  AP
A proposed $67 billion deal to acquire BellSouth Corp. will restore some of AT&T’s lost heft, making it the local phone service provider in 22 states and giving it a workforce of more than 300,000 people.
By Martin Wolk Executive business editor
updated 3/6/2006 1:00:02 PM ET 2006-03-06T18:00:02

AT&T is on the rise again.

A 20th century industrial icon, the company once known as American Telephone & Telegraph was chopped into pieces in the 1980s and then withered into a bite-size company that was easily swallowed up by one of its offspring last year.

A proposed $67 billion deal to acquire BellSouth Corp., perhaps the biggest merger ever in the telecommunications industry, will restore some of AT&T’s lost heft, making it the local phone service provider in 22 states and giving it a workforce of more than 300,000 people.

But for all its size the new AT&T is very different company competing in a very different world than the communications monoculture dominated by the old AT&T until it was forcibly broken up apart because of antitrust concerns in 1984.

The new AT&T is based not in New York City but in San Antonio, Texas, where it has its roots as the regional Bell operating company Southwestern Bell, later known as SBC. Last year SBC completed the $16 billion acquisition of the old AT&T, a huge deal that nonetheless was just the opening act for Sunday’s blockbuster.

Traditional local and long-distance phone service, the business that made Ma Bell a household name, is only a small part of the new AT&T’s diversified portfolio, which includes Internet data transmission, business services and above all, wireless communications.

Wireless appears to be one of the prime motivating factors behind AT&T’s plan to acquire its regional rival as chief executive officer Ed Whitacre focuses on wringing more efficiency and profits out of the growing business, which operates under the Cingular name and is jointly owned by AT&T and BellSouth.

“No partnership between two independent companies, no matter how well run, can match the speed, effectiveness, responsiveness and efficiency of a solely owned company,” Whitacre said in a statement announcing the merger.

One immediate way he plans to improve efficiency is by renaming Cingular and giving it the AT&T brand name once the merger is complete, expected in about a year.

AT&T launched a major advertising campaign after SBC completed the $16 billion acquisition last year and determined that the historic AT&T name was a better brand name for a company with national and international ambitions.

AT&T is spending hundreds of millions of dollars on the brand campaign, an investment that can be spread over customers of its local, long-distance, corporate and soon wireless businesses.

The new company will achieve other efficiencies too, allowing it to eliminate about 10,000 jobs, or 3 percent of the combined companies’ work force.

AT&T also is making made much of its ability to integrate the “three screens” that consumers depend on in their daily lives — television, computer and the little two-inch screen of the cell phone.

But analysts have so far been unimpressed by AT&T’s nascent entry into television over Internet protocol, or IPTV. AT&T last year began a limited test of the service in a few neighborhoods in San Antonio, Texas, and plans to expand the test this year. By the end of 2008, the service will be available to 18 million customers, an AT&T spokesman said.

But the advantages of the new service are unclear in a market where well-established cable, satellite and broadcast television have nearly universal availability.

Still, the new avenue of competition may help AT&T as it fights to win state and federal regulatory approval for the deal, which is likely but by no means certain.

Jessica Zufolo, an analyst for Medley Global Advisors in Washington, said AT&T executives may feel some urgency to act now when the regulatory climate under the Bush administration is favorable to such industry consolidation. The Federal Communications Commission might have very different priorities if a Democrat wins the White House in 2008, she said.

She said the deal is likely to be approved but possibly with significant conditions imposed, especially by regulators in the nine states where BellSouth operates, who also must weigh in on the deal.

In addition to consolidation of the wireless business, Zufolo said AT&T and BellSouth were motivated by a desire to boost their position in the lucrative business of servicing large enterprise customers, a business that helps offset losses in the traditional “switched access” space.

“The longer that the Bells remain separately held, the more likely they are to eat into each other’s space in the enterprise segment,” said Zufolo, senior policy director for telecommunications for the consulting firm.

She added that the deal announced Sunday is likely the beginning of a “second wave of massive consolidation in the communications space,” following such deals as Verizon’s $8.5 billion acquisition of MCI, Sprint’s $35 billion acquisition of Nextel, Cingular’s $41 billion acquisition of AT&T Wireless and the SBC-AT&T merger.

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