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AT&T, BellSouth Join Forces in $67B Merger

AT&T announced Sunday it would merge with BellSouth in a $67 billion stock deal, a merger that creates a telecommunications giant with more than 70 million customers across 22 states.

The merger, which still faces regulatory review, brings both owners of Cingular wireless together to create a powerful provider of wireless, broadband, video, voice and data services. BellSouth is the third-largest telecommunications provider in the U.S. and AT&T is the largest in the world.

With its control of Cingular wireless, the combined companies will be offering a fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions, the companies said Sunday.

The merger is also a powerful response to its competition, especially from cable companies now offering phone as well as voice over IP services; at the same time, Baby Bell providers are moving into Internet Protocol TV (IPTV).

BellSouth has been conducting market trials of IPTV, as it mulls whether or not it wants to offer video. But it has been considered more cautious than its Baby Bell brethren on IPTV trials, compared to Verizon and SBC (which goes by the name of AT&T following the $16 billion merger of those companies).

"This merger is a logical next step that creates substantial value for customers and stockholders of both AT&T and BellSouth," AT&c Chairman and CEO Edward E. Whitacre Jr., said in a statement Sunday.

"It will strengthen Cingular through unified ownership and a single brand. And we are confident that this is a merger we can execute, based on our track record with previous integrations and our experience working closely with BellSouth to create and build Cingular Wireless, and operate Yellowpages.com."

Duane Ackerman, chairman and CEO of BellSouth, said the technology changes and convergence in the industry are shaping a new competitive dynamic and creating tremendous opportunity.

Consumer groups are expected to raise questions about a deal that concentrates so much critical communications power in one company, even if the regulatory environment in recent years has tended to bless major telecommunications mergers.

The companies said that since AT&T and BellSouth are not actual competitors in the local, long distance and video markets, and because BellSouth is not a significant competitor with AT&T in the enterprise market, the merger will not reduce competition in any of those markets.

The combination comes as traditional phone providers, laboring under years of regulatory oversight, are struggling to compete with cable companies' "triple play" bundled offerings of video, data and voice services. That helps explain why Baby Bells are keen to expand their presence in delivering video over phone lines.

IPTV services are expected to include customizable channel lineups, video-on-demand, digital video recording, interactive program guides, event notifications and content protection features.

BellSouth's fiber-to-the-curb system -- which can deliver IPTV, as well as high-speed Internet, and Voice over IP service -- now passes 1.2 million homes.

In addition, the telephone giants want Congress to eliminate local video franchising requirements that the cable companies endured to enter local video markets, contending their IPTV offering will lower consumer costs for pay television by providing a competitor to cable and satellite services.

Verizon and AT&T are seeking single, statewide franchising agreements, eliminating the need for individual negotiations with thousands of local authorities.

AT&T has also been branching out into customer trials of a managed radio frequency identification (RFID) service it intends to deploy in the future. And it hasn't overlooked broadband pricing with a recent offering with Yahoo for high-speed Internet services to residential phone customers for $12.99 per month.

Whitacre is slated to serve as chairman, CEO and a member of the board of directors of the combined company. Ackerman is expected to serve as chairman and CEO of BellSouth operations for a transition period following the merger.

In addition, the companies said three members of BellSouth's board of directors will join the AT&T board and that the corporate headquarters for the combined company will remain in San Antonio.

Increased wireless demand, network expansion and broadband Internet access fueled a 9 percent growth in telecom spending in 2005 and is driving it to growth of about 10.2 percent in 2006, according to the Telecommunications Industry Association.

The upward trend is seen reaching $1.2 trillion in telecom sales between 2006 to 2009, according to the industry group's annual Market Review and Forecast report.

The big driver behind that growth? TIA said renewed demand for fiber-optic cable.