What does $67 billion buy these days? Convergence nirvana, for one thing.
If AT&T Inc.’s offer for BellSouth Corp. gets approved, as it’s expected, big-time convergence could finally start happening in real-world terms. Bundled communications services from a range of wired and wireless network connections across a variety of devices could become the norm. Whether subscribers want voice, video, data, consolidated billing-AT&T says it will have an answer.
“In one sense, this is a step on a continuum of where we see convergence going,” said Stephen Bye, executive director of wireless and converged services at AT&T. “Convergence for us is really about making things easier for our customers. We want to make it simple for our customers to access their e-mail from anywhere. From a service perspective, we want to make it easy to do business with us, from billing to service calls, convergence will give us opportunities to improve the customer’s experience. … Care and support are absolutely critical. … We’re very focused on providing a seamless experience to our customers. … We don’t want them to see a reason to switch.”
Bye also noted that management teams within the company would also be converged, which ought to make launching new products and services a less daunting, time-consuming, budget-hogging task.
But when asked how soon converged services are likely to be available, Bye quickly answered, “That really depends on customers. It depends on customer adoption rates. How soon will they take this on? We’re not exactly sure. We do know that not everyone wants everything all together-unified communications. But the adoption rate is good in certain sections. We do think a good portion of customers are looking for a `one stop’ experience.”
Indeed. The promise of convergence has the power to push the industry into consolidation among its major players.
“Clearly one of the motivators for this deal was to facilitate convergence,” commented Max Weise, principal at Adventis. “In essence, the current structure of AT&T made it hard to roll out converged services. It made things much more complex. The post-merger structure of AT&T will greatly simplify things. … If say, Verizon [Communications Inc.] isn’t able to simplify its structure, AT&T could have a significant competitive advantage and could seek to exploit that.”
How Verizon responds remains to be seen, but most agree that the ball is now squarely in Verizon’s court. Talk of when it could make a move and what it will be is rampant.
“Their first priority is to buy out Vodafone [Group plc], to take control of Verizon Wireless,” said Weise. “Primarily, they want to retain customers.” Vodafone currently controls 45 percent of Verizon Wireless.
Convergence services are expected to trickle into the marketplace with convenient services, but not necessarily exciting services.
“First, we’ll likely see simpler things like a single bill, dual-mode devices, VoIP, Wi-Fi and unified messaging,” explained Weise. “It will get to more interesting services like home control, mobile control of your home network. But it’s not clear when. And the impact isn’t entirely clear either, but there are a lot of expectations.”
Among vendors looking to cash in on convergence technologies in U.S. markets, Lucent Technologies Inc. is seen by most as the likeliest to succeed. With Internet Protocol Multimedia Subsystem solution contracts in place with AT&T, BellSouth and Cingular Wireless L.L.C., Lucent’s IMS market position is strong. How big of a revenue driver IMS will prove to be remains unclear, but the AT&T/BellSouth deal is good news for Lucent in general since it could push AT&T to elevate its convergence timeline.
As for further mergers and their impact on convergence technologies, there may not be many plays left on the carrier side. Qwest Communications International Inc. is the only baby Bell without a true wireless partner-the company offers wireless services through a mobile virtual network operator model using Sprint Nextel Corp.’s CDMA network-but the company’s whopping $15 billion in debt and its declining landline customer base are not attracting many dance partners.
However, the AT&T/BellSouth deal seems to have stirred up talk about a possible buyout of Qwest, whose territory stretches across 14 Western and Midwestern states. Late last week, the merger speculation pushed the company’s stock to $7.48 per share, nearly a four-year high. During the trading frenzy, more than 60 million shares were bought and sold. On an average day, Qwest’s stock usually sees about 13.7 million shares traded.
On the short list to buy Qwest: Verizon, and possibly AT&T. But Verizon’s interest in Qwest most probably takes a back seat to its stated intention of getting its hands on Vodafone’s minority stake in Verizon Wireless.
Another merger-created convergence factor could come if a cable operator made a play for Sprint Nextel, another rumor making the rounds in the industry. Sprint Nextel recently signed deals with a handful of cable providers to offer wireless services using the carrier’s network.
The AT&T/BellSouth transaction illustrates the three levels of convergence recently defined in a report by analysts at Deloitte.
On the first level, there are converged networks, or platforms. This, says Deloitte, is the foundation for all convergence.
“It is the basis that allows companies to develop and deploy converged offerings,” stated the report. “It is the systems and protocols that allow data of any format to move from one place to another, from the creator to the producer, from the supplier to the consumer. This content can then be consumed on different devices, via different networks.”
Deloitte says the organizational level of convergence comes into play out of necessity, as virtually all convergence offerings require input from more than one organization.
“Typically, different groups must work together, directly and indirectly, via acquisitions, alliances or simply supplier relationships, to develop and deliver a converged offering,” the report said. “Organizational convergence can be very positive for the bottom line-for example, the partnership between movie studios, sports franchises and video-game developers has bolstered an electronic games market that, in the United States, is actually larger than the box office.”
Finally, Deloitte says product and service convergence is the end result of converged market offerings that meet customer needs.
“The ultimate objective for technology, media and telecommunications convergence is to deliver products and services that address previously unmet or under-satisfied customer needs,” the report said. “This means creating something new that customers are likely to find valuable, or taking something they already find useful and making it better.”
The undeniable truth is that AT&T’s plans to buy BellSouth gives the company a very good chance to delight its customers with converged services before any other company. This capability gives AT&T a big advantage over its competitors, who need to react quickly in order to stave off waves of departing customers.
“We’re always trying to stay one step ahead of the competition,” said AT&T’s Bye.
