The creation of the world’s biggest telecommunications company – which is what a combined AT&T and BellSouth would be – will have ripple effects beyond the market for telephone services.
The most immediate impact might be an acceleration of deals by telecoms rivals, particularly the US number-two player Verizon Communications. But the $67bn acquisition could also affect the television and internet markets.
Already, Shares in the cable and satellite sectors are trading at historically low valuation levels amid investor concerns over the creation of full-service communications companies offering telephony, television and internet services, which could lead to price wars.
Technological developments, particularly the growing use of delivery of voice and data over the internet, are letting cable companies such as Comcast Corp and Time Warner offer telephony and internet services alongside television. The driving force behind these initiatives is to lock customers into a bundle of services, from which they are less likely to switch, from, reducing subscriber churn rates.
In response, telecoms groups are building networks to provide television services in addition to traditional telephony and high-speed internet and wireless subscriptions. Satellite broadcasters such as DirecTV and Echostar in the US are trying to find a way to extend their services beyond multi-channel television, and are in discussions to provide mobile broadband to subscribers.
The new AT&T could fuel concerns about price wars, analysts said, especially because AT&T was the US carrier with the most ambitious television roll-out plans through its Operation Lightspeed plan, and had been willing to offer low prices to customers opting to use its services for internet connections.
“The deal will exert some pressure …because of fears that it will increase competition, foremost that AT&T will export its aggressive pricing and [television] strategies to the BellSouth footprint,” said Douglas Shapiro, analyst at Bank of America.
The deal might be particularly troublesome for DirecTV, in which News Corp has a controlling stake. DirecTV currently co-markets bundled offerings with BellSouth, and AT&T has a similar agreement with Echostar.
“There could be downside pressure to DirecTV subscriber growth targets in the likely event that BellSouth/DirecTV migrates to the broader AT&T/Echostar deal,” said Aryeh Bourkoff, analyst at UBS.
Verizon and rival Qwest may be hurt by the deal as direct competition increases, particularly for business customers, increases, according to Jason Armstrong, analyst at Goldman Sachs. He also predicted the deal would will benefit second-tier and regional telecoms carriers such as AllTel, since it increased the potential for additional rural spin-offs.
Both AT&T and Verizon have made clear in the past that they would like to spin off at least some rural lines, while BellSouth had shown much less interest. With AT&T executives likely to dominate the merged company, their strategies are likely to extend into the BellSouth footprint.
Outside the telecoms industry, the deal could be positive for companies providing the infrastructure and software that will power the next-generation television networks planned by AT&T – especially Alcatel, the French equipment vendor, and Microsoft, which is supplying AT&T with the software for its television expansion.
Yet all of AT&T’s competitors can probably count on a one-year window before big changes come, as it the company deals with the regulatory process and other merger issues. “The initial one to two years will require meaningful integration and potentially make AT&T less nimble than its cable and satellite competitors,” said Doug Mitchelson, analyst at Deutsche Bank. “[This] is clearly a critical period for cable and [satellite] operators to complete their advanced service roll-outs and tie up customers.”
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