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SBC and AT&T to Become Nation’s Largest Telecom Firm

Telecom giants SBC Communications, Inc. and AT&T announced on Sunday plans for a $16 billion merger. Two telecom analysts explain the merger and the possibility for a "wave" of similar mergers in the near future.

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  • JIM LEHRER:

    And finally tonight, a big merger in the telecommunications world among two companies whose histories are tied very closely together. Jeffrey Brown has that story.

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    Thanks for calling.

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    Thanks for calling.

  • JEFFREY BROWN:

    For millions of Americans, AT&T was Ma Bell. An iconic company founded by Alexander Graham Bell in 1877 and for many decades the nation's provider of phone service. Now Ma has been swallowed by one of her own children.

    In a $16 billion deal, San Antonio-based SBC will buy AT&T and itself become the nation's largest communications company. The two corporations, with more than 228,000 workers, reached an agreement late last night after both boards of directors approved the deal.

    SBC, originally known as Southwestern Bell, began life as one of the regional companies formed after the U.S. Government forced the breakup of AT&T in 1984. Since then it's been one of the most ambitious of the so-called Baby Bells and now has about 50 million local telephone customers, mostly in the Southwest and parts of the Midwest.

    Last year it bought 60 percent of Cingular Wireless, which serves more than 46 million customers. The SBC/AT&T transaction is now subject to approval by shareholders of both companies, two federal agencies, and at least 26 states, a process that could take until next year.

  • JEFFREY BROWN:

    And for more on this deal, I'm joined by James Katz, professor of communication at Rutgers University, and Jeff Kagan, a telecommunications industry analyst in Atlanta, whose many corporate clients include both SBC and AT&T. Welcome to you both.

    Starting with you, Mr. Kagan, let's start with the buyer here. What is SBC after?

  • JEFF KAGAN:

    Well, Jeff, it's all about competitive advantage. It has to do with a company that's trying to expand and put pieces together that are beyond its regional boundaries right now and becoming a national company.

  • JEFFREY BROWN:

    And how does taking AT&T help it get there?

  • JEFF KAGAN:

    Well, AT&T is a national company. It's — it used to have a consumer business; it used to have a cable business; and it used to have a wireless business. Now it's really just a nationwide business service. And by acquiring this, SBC gets to practice outside of their region; they transform themselves from being a regional phone company to being a national phone company.

  • JEFFREY BROWN:

    So when you say taking AT&T will let them do that, what down the line is SBC after? What is it trying to make itself into here?

  • JEFF KAGAN:

    Well, telecommunications has gone through some major changes. The telecommunications industry was broken up in 1984 when AT&T was broken up into seven Baby Bells and AT&T. Then there's been a series of mergers. The wireless business has been introduced. The Internet has been introduced.

    There's all these different things. Now we have voice over IP, and now all of a sudden there are new providers of telephone service and the meaning of competition in telecom is changing. SBC used to provide just local phone service. Now they're providing everything.

    They're providing long distance, and local and Internet and cellular and even television in their region but they want to be a national company. So this helps them just to break out of the borders and become a national provider of service, something that's going to happen I think in the industry. Other providers are going to follow, and you're going to see MCI is going to be the next company going to be acquired and it's going to continue. The merger wave is going to continue over the next few years.

  • JEFFREY BROWN:

    All right. Well, let's come back to that. Professor Katz, I want to ask you about AT&T because probably for most people here the big story is the demise of AT&T. Why in the end was it unable to survive?

  • JAMES KATZ:

    I think a large element is the fact that it wasn't able to get back into local service. Although it once was America's largest private employer back before the divestiture of 1984, it has made a series of business blunders that have cost billions. It got out of the wireless mobile phone business, got back in, got back out, and has essentially just had a heritage of great mistakes.

    That's pretty much where it's left today with the once vaunted consumer market pretty much in smithereens. And the reason for that is that AT&T because of federal decisions wasn't able to get back into the local market and connect up its local service with its long distance service.

  • JEFFREY BROWN:

    Tell us a little bit more about the role that this company played in American corporate life but also in the lives of average Americans.

  • JAMES KATZ:

    Well, it used to be known as Ma Bell. And it meant essentially cradle to grave employment for the people that worked for it and it also meant good, reliable albeit cumbersome service for the people who used it which included the overwhelming majority of Americans.

    AT&T, the Bell system, really was an American symbol. It's something that was carefully groomed over decades. And I think one important turning point was when they changed from the old traditional Bell to kind of a modernized Bell. I think that got people beginning to think maybe there's something more here than a government utility because I think most people thought of it as a government utility even though it was one of the few regulated monopolies in America.

  • JEFFREY BROWN:

    I was thinking today of the old Lily Tomlin comedy routines about AT&T, where she'd say we don't have to care. We're the phone company.

  • JAMES KATZ:

    Well, they cared very much. The trouble was they were pretty severe and strict in what they cared about. For example, there was no way to turn off your telephone. There was no on/off switch for the ringer. You weren't allowed to hook up extra things.

    They fought the telephone answering machine, for example, for many years. They fought the fax. They really were against any kind of innovation except that which was carefully approved and regulated and benefited them. So I think over the years, even though people loved the high quality service, loved the service ethos, loved the pay phones everywhere, ultimately as technology progressed there were just too many alternatives and people wanted to look beyond just one plain old service.

    You might say for many years you could have a phone in any color as long as it was black, and the big innovation in the 1960s was the Princess phone, which came in a variety of pastel colors. Now take a look at the kind of phones you can buy. They can look like Mickey Mouse or just about any other shape you can imagine.

    All kinds of delivery methods: Wireless, Internet, Wi-Fi and good old over the twisted pair as we refer to it to the home. So there's just an explosion of technology. One company can't do it all. That was AT&T. We loved it while we had it, but those days are gone.

  • JEFFREY BROWN:

    Jeff Kagan, are there any immediate impacts in this deal for consumers and for the work force of these two companies?

  • JEFF KAGAN:

    Well, actually if I could just — I'd like to just maybe shine a little bit of different light on it. AT&T, I don't believe is a company that's in trouble. I think AT&T is actually hitting a homerun with this. It's a much different company than it was. It's a much smaller company than it was.

    For a while back in the 90s it was a cable company, it was a wireless company. It was local, long distance, business and consumers. It was a huge company. Things have changed. It's a smaller company. It doesn't offer any of those services now except for the business services.

    But what's happening is the company itself is, I think, very strong and provides very good services. They have very happy customers. And I don't believe that they're going out of business or any of that, I think they're a fine, strong company who happens to be merging with SBC. I don't think SBC would buy AT&T and spend $16 billion if it was going to be worth less every year from now on.

    I think AT&T is worth less than this year than last year and it's been worth less the last few years. But they've gone through major transformation in the past year. They've dumped their wireless business. They've dumped the cable business. And they've dumped their consumer business. They're actually not signing up new consumers anymore. They're focusing on the business market so they've reinvented the company.

    It's much smaller than it was, but I think the company that it is now can be sustainable for many years to come. And that's why SBC wants it because they want a national footprint for business customers because right now SBC can only address the way the other Baby Bells do business customers within their region and consumers within their region. This gives them the opportunities, the first time a Baby Bell can sell and service business customers on a nationwide basis. That's going to be huge.

    I think that's going to transform the industry. I think MCI is next. I mean who is going to be acquiring MCI? Is it going to be Verizon; is it going to be Bell South or is it going to be Qwest? I think this transforms the industry and it transforms the companies from being regional only to national. I think what we're going to end up with over the course of the next several years after this wave of mergers is done is we're going to end up with several big companies that offer everything to everybody and that's exciting to me. I don't see it as the end of the road at all.

  • JEFFREY BROWN:

    Professor Katz briefly, do you agree also that this is going to lead to a whole wave of new mergers?

  • JAMES KATZ:

    Sure. And I think the idea is to have bundled services end to end to give all the telecommunications services, entertainment, cable, wireless, telephone through one company. That's very much the objective, but I think in the sense most of your viewers — probably mourn the passing of AT&T — as something that really stood for a meaningful service goal, stability, and a real contribution to American culture through the years through its support and to that I'm afraid we have to say good-bye.

  • JEFFREY BROWN:

    All right. And actually we have to say good-bye. James Katz and Jeff Kagan, thank you both very much.

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