Unthinkable Mergers No Longer a Thing of the Past By Timothy E. Young, Jr.

"A combination of AT&T and a 'Baby Bell' is unthinkable"
-Reed Hundt, FCC Chairman, June, 1997

The unthinkable has become reality, and in only eight short years after Hundt's statement. SBC, one of the many companies calved from the giant that was AT&T prior to deregulation, has begun to finalize plans to acquire Ma Bell. SBC is shelling out $16 billion for the ailing leviathan, as well as absorbing AT&T's estimated $6 billion in debt, for a total of a cool $22 billion. The implications of this marriage for the telecommunications industry are many and varied, and some will be felt sooner than others. Overall, the merger many analysts characterize as risky may prove to be just that. In swallowing AT&T's assets, SBC also takes on the company's debts and somewhat bleak short-term sales outlook.

The SBC/AT&T merger will, like any consolidation, demand patience on the part of all involved, since it will be quite some time before the full effect of the acquisition can be known. One of the first effects will likely be a serious scaling back of jobs within the companies. Spokesmen for SBC and AT&T told USA Today that the new company plans to eliminate as many as 13,000 jobs over the next year. Companies that provide goods and services to SBC and AT&T are likely to experience slow-down as well. In the time it takes for the post-merger conglomerate to reassess its network and decide what changes to implement, companies with less resistance to market slumps may take grave losses. According to a Merrill Lynch report, companies like Avici, who has provided AT&T with a large number of IP routers in the past may not be able to weather the storm that will accompany consolidation, and the drop-off in business received from AT&T could seriously injure the firm. Furthermore, vendor companies supplying SBC/AT&T now have one less customer. This is, after all, the point of a merger. The companies involved want to spend less money, not more.

"Carriers don't consolidate so they can increase spending, but if they're integrating networks, it may accelerate the migration to an IP infrastructure," said Erik Suppinger, an analyst with Pacific Growth Equities, in an interview with C-Net News.com. This shift would create a demand for service and support on many levels; impacting the demand for OSS professionals may, indeed, increase.

Another concern among many, within the OSS industry and elsewhere, is the limiting of consumers' options that will accompany the merger. Anti-trust hard-liners are naturally wary of the combination, as are many who simply worry that an already shaky customer-service track record for both companies will only worsen as their list of competitors shortens. However, the companies offer, by way of a merger statement available on the SBC website, a list of their myriad competitors, including "IXCs, systems integrators, equipment vendors, VANs, other network providers, foreign carriers, CLECs, cable operators, and other ILECs." The obvious logic behind this reassurance is that a wide variety of telecom options will force SBC/AT&T to stay sharp or get left behind. It can be argued, however, that some of these very competitors may turn to consolidation as well in order to properly combat the SBC/AT&T behemoth.

Consider Verizon, relegated to second place with the SBC/AT&T merger, which has agreed to acquire MCI. Likewise, there is talk that BellSouth the, 3rd largest local phone company, may seek to diversify through acquisition as well, and has already teamed up with Dell and SBC to diversify its service portfolio. This domino effect will ultimately be as important in determining the future of telecommunications competition as the moves of any one company.

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