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AUGUST 31, 2005
So Long, AT&T? Not So Fast Once SBC completes its acquisition, Ma Bell's familiar moniker will replace its new parent's. And a renewed consumer push will commence As telecom giant SBC (SBC ) prepares to close its acquisition of AT&T (T ), it might seem that the 120-year-old telecom brand is about to fade into history. Don't bet on it. SBC, which was spun off from AT&T amid the breakup of the Bell telephone system in 1984, will assume its former parent's name, BusinessWeek Online has learned. The plan, which is consistent with speculation that followed SBC's bid for AT&T earlier this year, reflects SBC's new national identity and its desire to market AT&T's Internet phone service to consumers around the country. And it gives SBC a marketing weapon to use against its rivals. GLORY DAYS PAST. The initials S-B-C trace back to the company's roots as regional Southwestern Bell Telephone Co. A spokesman says SBC has made no decision on the fate of the AT&T brand. But one industry executive familiar with the matter says SBC's rebirth as AT&T is a done deal. The AT&T brand still ranks among the most recognizable corporate monikers in the world. Of course, it has diminished since the height of AT&T's power, when it spent as much as $1 billion a year on marketing and advertising. But the name, which goes back to the incorporation of AT&T in 1885, has hardly passed from the national consciousness. SBC's acquisition of AT&T is expected to close any time after mid-November because it requires approval at both the federal and state government level. First, the Federal Communications Commission and Justice Dept. are expected to sign off in mid-September. And then the long process of winning state approvals for the $16 billion cash-and-stock transaction is expected to take another two months, concluding with a vote by California regulators. WHO STAYS, WHO GOES? The company that emerges from the acquisition will look far different from the current SBC or AT&T. Ed Whitacre, SBC's longtime CEO, will likely step aside after a long and dramatic reign filled with big deals. Whitacre built SBC into a national player with the purchase of Ameritech, its counterpart in the Midwest. He also pushed wireless giant Cingular, a joint venture of SBC and BellSouth (BLS ), to acquire AT&T Wireless. The top job at the combined SBC-AT&T is expected to go to SBC's current chief operating officer, Randall Stephenson. It isn't clear whether or not AT&T CEO David Dorman, who will earn about $20 million from the sale of AT&T, will stick around. AT&T still serves millions of consumers, but it has stopped marketing and advertising in traditional consumer media such as print and TV. SBC has different ideas, though. It wants to sell AT&T's Internet-based phone service to consumers around the country. As SBC pushes beyond its local phone markets in the West and Midwest, it will compete head-to-head with rivals such as Verizon (VZ ) and BellSouth and cable-TV operators such as Time Warner (TWX ) and upstarts Vonage and Skype. "NEED TO BUNDLE." SBC is readying for a nationwide push in the consumer market by getting its infrastructure in place. It has networks covering the West and Midwest, and it serves about one-third of the nation's phone lines. SBC has widened coverage outside of its region by striking deals with Covad. And SBC and AT&T extended an agreement with Time Warner Telecom (TWTC ) in June. Time Warner Telecom will help connect the merged companies to customers outside of the SBC region, where SBC doesn't have its own wires running into homes and businesses. AT&T hasn't enjoyed much success in the consumer market on its own during the last few years. It spent $25 million promoting its Internet phone service during the 2004 summer Olympics. Reviewers gave the service high marks, but AT&T couldn't gain enough traction and shifted its focus to serving businesses. The approach to business will change after the SBC-AT&T deal closes, though. The new company will find it easier to sell consumers on broadband and Internet phone service, known as voice over Internet protocol (VOIP). "It's clear you need to bundle voice over IP with broadband and video," says AT&T spokesman Gary Morgenstern. "We weren't able to do that as a stand-alone company, but SBC can. So it will have a different value proposition." SBC, like Verizon, is beginning to roll out TV service. VoIP'S BLOSSOMING. Internet phone technology continues to advance, which will help SBC-AT&T compete with traditional phone services in territories served by Verizon, BellSouth, and others. For example, Covad is deploying a new kind of "line-powered" VOIP, according to CEO Charles Hoffman. Customers will have full 911 service, just the way regular phone customers do. And they won't have to worry if their electrical power is knocked out, because the phone will be powered by a common source at the company's local phone office, just the way regular phones are. In fact, they won't even need to plug their VoIP phone into a cable modem or DSL router, he says. AT&T's return to the consumer market shows that VoIP is coming of age. Smaller rivals such as Vonage will face a challenge, because they won't be able to match the breadth of offering from the likes of SBC and Verizon, which is buying MCI (MCIP ). Vonage lost its lead in the Internet phone market to Time Warner and is looking for a buyer, according to a report in trade journal LightReading. And Skype is looking for a buyer, too (see BW Online, 8/10/05, "Skype: On the Block"). The technology has changed immeasurably over the last 120 years, but one thing is as true about the communications business today as it was in the days of Alexander Graham Bell: The advantage goes to the company with the greatest scale and scope.  By Steve Rosenbush
BW MALL
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