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AT&T Deal Reunites Old Bell System Siblings

RENEE MONTAGNE, host:

There is more consolidation in the telecommunications industry. AT&T confirmed yesterday that it will buy BellSouth in a stock deal worth $67 billion. The merger will create a telecommunications behemoth that will reunite much of the old Bell local phone network. The deal takes place at a time when new cable and Internet services are taking customers from traditional phone companies.

NPR's Jim Zarolli reports.

JIM ZARROLI reporting:

The company called AT&T was already the dominant local phone company in much of the Southwest, the Midwest and California. If the deal goes through it will also be the biggest player in the fast growing Southeast. It will own all of the Cingular Wireless Company, and it will be a major player in Internet, business services and long distance wireless.

Scott Cleland of the Precursor Group is an industry consultant.

Mr. SCOTT CLELAND (Managing Director, Legg Mason Wood Walker, Inc., Precursor Group): It'll make AT&T the largest communications provider with a tremendous amount of scale, tremendous amount of efficiency. It will probably be the low cost provider. And it'll be able to achieve some amazing synergies from this, that shareholders certainly will like.

ZARROLI: The scope of the deal is rich with irony. Historically, AT&T was the only phone provider for most of the country, before it was broken up in the early 1980s. One of the companies that emerged from the break up was the San Antonio based Southwestern Bell Corporation, which later became SBC and acquired several large local phone companies. Last year, it even acquired its former corporate parent AT&T and took on its venerable brand name.

So the company known as AT&T is different from the Ma Bell of old. But like the old company, the new AT&T will be the largest and most powerful phone company in the nation. Its only full-fledged U.S. competitor, arguably, will be Verizon.

Consumer groups are already calling on regulators to block the deal, saying it will mean less competition and higher prices for consumers, especially in the southeast. But Gene Kimmelman of Consumers Union is skeptical that regulators will stop the merger.

Mr. GENE KIMMELMAN (Director, Washington, D.C. Office, Consumers Union): The Justice Department in both the Clinton administration, and now the Bush administration, has let every telephone, every wireless merger go through. After 20 years ago, breaking up the old AT&T monopoly, it appears to just be allowing it to be recreated.

ZARROLI: But the new AT&T is in a much different position than the old one. The competitive landscape today is more intense than it once was for big phone companies. Long distance is far less profitable than it once was. Cable companies, such as Comcast, are now offering phone service; and that's eating into the customer base of companies like AT&T and Verizon. There's also a big threat from companies that sell phone service over the internet.

Consultant Scott Cleland says joining forces will put companies, like AT&T, in a better position to compete. He says there's another motive for the deal, as well. Bell South and AT&T are co-owners of Cingular Wireless, and merging will bring all of the wireless company under one roof.

Mr. CLELAND: Wireless is the future and wireless is where the growth is. And currently they are in 50-50 joint venture with Bell South--and so, every time they want to do something big, they need to get consensus. And that's not the most efficient mechanism.

ZARROLI: The deal announced yesterday is also a major coup for Ed Whittaker, the low-key 63 year old chairman of AT&T. He has shepherded his company through one bold takeover after another, often paying top dollar to do so. Whittaker made several attempts to acquire Bell South, but it wasn't until this weekend that the two companies could agree on terms. If the deal goes through, Whittaker will be the new company's chairman.

Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

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Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.