Unthinkable Mergers (cont'd)

Some consumers, whether commercial or residential, see the concentration of telecom interests into a few sets of hands as a positive shift. It is a question of access. The idea is that the larger a company's network, the better the service. In the case of SBC/AT&T, the new company hopes to turn two companies who fill separate market niches, with some overlap, into a single company that performs better on all fronts. SBC has had only intermittent success in the business market, although an extensive, if less-than-satisfied residential base. AT&T, having initially ignored the importance of IP in the late 1980s, made up for its short-sightedness by building a substantial IP foundation. SBC is correct in recognizing the value of such a network, and has chosen to ride the 'whale'.

Likewise, AT&T saw its residential customers slip away, focused on business, and held on for a while longer until opting for the current merger. Now the two halves of the market are combining their assets and streamlining the overlap. From a market standpoint, it's a wise decision. AT&T already offloaded its wireless network, which was purchased by Cingular, which is in turn owned by SBC and BellSouth (with SBC holding a 60% share), thereby eliminating one potential area of overlap before the merger was even publicly discussed.

Furthermore, the geographic implications of the merger are significant. SBC, based in Texas, derives most of its business from its home state, the Midwest, and California. Whereas, AT&T has a global fiber-optic network in place and name recognition that spans the globe. SBC, the wealthy wallflower, has scored a dance with the belle of the ball who lives beyond her means. The union is natural. The merger will allow for eventual expansion of all segments of the company, if only to a greater extent than either company was managing on its own.

If all goes according to plan, the future of the combined company looks rosy. However, the long-term benefits must be weighed against the short-term setbacks. SBC must take great care not to test the patience of customers, to honor all outstanding AT&T contracts, to avoid excessive job cuts and the PR problems layoffs entail, and to generally walk on eggshells until all aspects of the business are up to potential speed. After all, if they are being completely forthright about the numerous and readily available alternatives for telecom services, consumers have no incentive to stay with a sub-par provider.

Ultimately, there is only so much dust that customers will pardon, no matter how grand the final result portends to be. However, regardless of the end result, the deal is an indicator of how much things have changed since Reed Hundt made his misbegotten prophecy, and surely a sign of things to come in the future of telecommunications.

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