NEW YORK-The surprise announcement of a proposed merger between SBC Communications Inc. and Pacific Telesis Group came about due to a unique set of circumstances. But the move, a first by two Baby Bells since the 1984 court-ordered breakup of Ma Bell, may also be a bellwether.
At the very least, it certainly has unleashed a torrent of speculation tinged with irony. The big question is whether all the deregulation designed to promote competition, including the 1996 federal law, instead will lead full circle back to monopoly, or at least to oligopoly.
Industry analysts see little downside to the merger. They say competitors to the traditional phone companies are emerging to provide alternatives, like wireless communications, and deny monopoly power to the giants.
“In some respects, the wired system already is obsolete,” said Howard Anderson, president, The Yankee Group, Boston. “We will have a half-dozen wireless options, and that will give us competition.”
PacTel killed the goose that laid the golden egg when it divested itself in 1994 of its majority stake in AirTouch Communications Inc., thereby spinning off its primary growth vehicle in cellular and paging services. In order to jump back into wireless, it invested about $700 million in licenses for personal communications services, which aren’t yet in commercial operation.
With its finances stretched, PacTel faces a possible debt rating downgrade. To clear this short-term hurdle, the company offered itself for sale to several other companies, including GTE Corp. SBC, which has invested heavily in cellular services, agreed to buy PacTel partly because it believed the company was undervalued.
Two other regional Bell companies-Nynex Corp. of New York and Bell Atlantic Corp. of Philadelphia-merged their cellular operations last year. Bell Atlantic has acknowledged it is in negotiations with Nynex for a larger merger. But price seems to be the sticking point.
The apparent expectation by investors of more mergers on the horizon boosted the share price of Baby Bell stocks in the wake of the SBC/PacTel announcement. But since most merger talks hinge on price, industry analysts said fluctuating market values make deals more difficult to complete. Therefore, a flurry of Baby Bell mergers is not necessarily a given.
Furthermore, some of the other regional Bell operating companies announced they have no intentions, at least at this point, to merge. Ronald Dykes, chief financial officer of BellSouth in Atlanta, said his company’s focus is in three areas: wireless services, international sales and local phone service in its nine-state region.
Some published reports have suggested that BellSouth and Ameritech Corp., based in Chicago, would make good merger partners. But Patrick Campbell, Ameritech executive vice president for corporate strategy and business development, said Ameritech would instead look for alliances to fill out its services for the Internet, software and home security services.
In Campbell’s view, the SBC-PacTel merger is unique because the spin-off of PacTel’s cellular business and its tough regulatory environment created a need unusual among RBOCs.
Still, some observers predict all seven RBOCs will merge into a conglomerate that will buy long-distance giant AT&T. “The seven companies obviously have been talking for some time,” said A. Michael Noll, a former executive of the old Bell system who is now a communications professor at the University of Southern California in Los Angeles. “I’m predicting the Bell system will be put back together by the year 2000.”
Robert Rosenberg, president of Insight Research Corp., Livingston, N.J., concurred. “We’re going to see the remaking of Mother Bell, putting her in a ’90s outfit,” he said. “The idea is that Mother Bell takes care of you. By making one phone call … one company will provide local and long distance, cellular and anything else, including entertainment and other content.”
Few others go as far as Noll and Rosenberg, but they do expect more mergers among the Baby Bells, with only three or four dominating the telecommunications industry in a few years>
