by Thomas Wailgum

Why the AT&T-BellSouth Deal Is Important to You

Jan 05, 20074 mins

If you were too preoccupied planning your New Year’s celebrations, you might have missed this: On Dec. 29, 2006, the Federal Communications Commission announced that it had finally given its approval of AT&T‘s $86 billion acquisition of BellSouth. (This news gave AT&T stockholders reasons to cheer because since the acquisition was announced in March the shares for both companies have risen — AT&T’s up 26 percent, BellSouth’s up 48 percent since then, according to a recent article in The New York Times.)

Though there were several speed bumps that slowed the process along the way, the final outcome never seemed in doubt. Now, the combined companies have formed a $115 behemoth, and with just three big boys left (AT&T, Qwest and Verizon), doing business in the telecommunications space is feeling like the good (or bad, depending on your perspective) old days before the original AT&T was broken up in 1984.

In order to obtain the FCC’s approval, however, AT&T had to sign off on a series of concessions. (The FCC announcement and list of concessions, which runs roughly 20 pages, can be found here). Most are pledges relating to consumer-oriented concerns — broadband availability, and pricing and rate pledges.

But there are two aspects of this deal that CIOs should be interested in. The first relates to net neutrality, and it has garnered the majority of the press. Basically, AT&T pledged to keep the Internet free of any kind of tiered system for its services for the next two years. That’s a good start to cementing net neutrality, and AT&T has been applauded by many, including those lawmakers in Washington who have been following this closely. AT&T did include a couple caveats, however. One is that the commitment to a neutral network (and neutral routing processes) excludes AT&T’s IPTV and IP VPN services. That isn’t surprising since IPTV has become such a key part of AT&T’s (and Verizon’s, for that matter) strategies now and in the future.

The second aspect of this deal that CIOs should know about is actually good news: AT&T has pledged to freeze its prices for wholesale local service that it sells to incumbent local carriers, for up to three years. That’s good news because CIOs (who now find themselves in charge of telecom, whether they like it or not) will be able to count on consistent local telecom prices for the next couple of years, says Brian Washburn, principal analyst for business network services at Current Analysis. “There will be no weird fluctuations in rates,” he says, “and CIOs will be able to get stable prices.” Washburn just released a report on the AT&T deal, and he says CIOs shouldn’t be afraid to shop around for services from competitive local exchange providers and other third-party companies that buy the wholesale services from AT&T, because things will be more competitive now.

And if you add stable local telecom costs to the decreasing costs that CIOs are having to pay for long distance as of late, Washburn says, and the rise in successful voice over Internet protocol (VoIP) implementations that are saving some CIOs money, then they may be able to decrease their organizations’ overall telecom spend during the next several years. That’s key because telecom costs have risen to one of the top three line items for many companies.

He also notes a couple of things that not many others are talking about, regarding the deal, which I thought were of interest. First, AT&T wrote the concessions itself, and Washburn writes in his report that the “concessions at face value are lenient, which one should expect from a company that writes its own terms of engagement.” He goes on to note that “a look through AT&T’s concessions appears a mix of pre-existing compliance requirements and pre-planned upcoming network investment and marketing.” So while we can applaud AT&T for its pledges, the company was clearly acting in its own self-interest as it plans for the future. And second, while AT&T is required to issue reports on the performance and compliance with its concessions, Washburn notes, there are no defined penalties if AT&T fails to meet its goals. Even so, Washburn would be surprised if AT&T didn’t adhere to the document. “They’re not going to scrap the document” if something changes, he says.

We shall see.