SBC, AT&T Get the Merger Started

SBC and AT&T filed merger paperwork with the
Federal Communications Commission (FCC) today, initiating a government
review process that will likely stretch into 2006.

In addition to the FCC, the Department of Justice must approve the $16 billion combination of regional telecom and venerable long-distance company.

“We believe the acquisition will bring numerous benefits to customers,
employees, shareholders and the telecom industry in general,” Wes Warnock,
an SBC spokesman, told internetnews.com.

Specifically, SBC and AT&T contend the combined company can bring new
communications technologies to customers faster than they could on their
own. This in turn, would prompt development of new services, the companies
said.

The deal could help competition in the consumer long-distance market, the
companies said, noting that AT&T stopped pursuing new long-distance customers last year.

According to research from TNS Telecoms, a telecom market information and
analysis company, the combined company would control 27 percent of the
local phone service consumer market and 37 percent of the long distance
consumer market.

As for corporate services, businesses will still be able to choose from
several systems integrators, equipment vendors and value-added service
providers, foreign carriers, competitive local exchange carriers and cable
operators, the companies said.

Finally, the companies claim the merger will strengthen national security.
AT&T counts the White House, Department of Homeland Security and Department
of State as customers.

“This transaction will result in a robust, U.S.-owned carrier with the
financial resources and technical expertise necessary, not only to continue
to provide those services, but also to improve them through even greater
investment in innovation that produces cost savings, more reliable services,
and more robust capabilities to meet future needs,” the companies said in
their filing.

Analysts at Legg Mason expect the regulatory review to last between a year
and 18 months. In a recent research note, Legg Mason believes the merger has
a good chance of passing, “but could be subjected to significant
divestitures, particularly in SBC’s region, that complicate matters.”

There’s no guarantee of smooth sailing for SBC-AT&T. The Consumer Federation
of America and U.S. Senator Daniel Inouye (D-Hawaii) have expressed concern
about the impact of the merger on customer choice and innovation.

The deal will also be evaluated in the context of a consolidating industry.
Shortly after the SBC-AT&T merger proposal became public, Verizon announced its intention to buy MCI .

That proposed marriage is still in flux as Qwest is expected
to sweeten its bid for MCI. Besides a financial argument, Qwest contends
that a Qwest-MCI merger would win government approval faster than a
Verizon-MCI combination, an assertion some industry watchers view skeptically.