What does the AT&T-BellSouth merger mean for consumers?

The proposed merger of AT&T and BellSouth could accelerate innovation, but consumer groups worry it may stifle competition.

Only three months after it closed the merger of AT&T and SBC Communications, the new AT&T is opening its checkbook again to buy BellSouth for a whopping $67 billion. So what's this megamerger mean for consumers?

Initially, consumers are not likely to even notice the merger, which is expected to close within the next year. For one, AT&T, which is still busy integrating business units and networks from its last merger, will also take time to make all the logistical changes associated with a merger of this size.

Another reason consumers likely won't feel the impact right away is that the two companies don't directly compete with each other, except in some business accounts. AT&T provides local telephone service and broadband in 13 states in the western and southwestern parts of the United States, whereas BellSouth provides those services in nine states in the Southeast. The two companies also jointly own Cingular Wireless, so other than a name change, the service isn't expected to be affected.

But taking a longer-term view, consumers could see several changes. While the companies believe the merger will allow AT&T to roll out new services more quickly, consumer groups worry that a bigger AT&T will hurt competition by putting an even tighter squeeze on companies such as Vonage, which uses broadband networks to provide services like IP telephony to consumers.

"Consumers won't actually begin to see any real change in services for at least two to three years," said Charles Golvin, an analyst with Forrester Research. "Eventually, an integrated company could introduce new services more quickly. But there is a risk that a bigger AT&T could move slower."

The wireless advantage
The most immediate and obvious benefits of the merger will likely impact wireless customers. Wireless is one of the fastest-growing parts of AT&T, which owns 60 percent of Cingular Wireless. By taking full control of the company, executives at AT&T believe they will be able to use the revenue growth and the savings it will get by consolidating certain functions, such as marketing, to invest in new technologies and expand its business.

"(This merger) will improve our growth profile with increased exposure to wireless," AT&T Chief Executive Edward Whitacre said during a conference call with analysts and investors on Monday. "And it will create a strong national and global competitor better positioned to innovate and deliver new services to both businesses and consumers."

For example, AT&T could develop a new service that allows people talking on dual-mode wireless phones to use the cellular network when they are outside their home or office, but then switch over to a broadband IP network when they are making a call where they can receive a Wi-Fi signal.

Not only does this give more options to customers, it allows AT&T to better manage usage on its network. Sprint Nextel touted this potential service when it announced a development relationship with four cable companies last year.

Exploiting the alliance
Other advanced communications services, such as a single voice mail service for wireless and landline phones, could be introduced. Video services could also be linked to cell phones.

AT&T and BellSouth are also closely aligned when it comes to their wireline broadband strategies, which could mean speedier IPTV deployments for BellSouth customers. The main reason for this is that the companies have built their networks around a similar architecture.

Unlike Verizon Communications, which is spending billions of dollars to extend fiber optics directly to consumers' homes, AT&T and BellSouth have extended their fiber networks only into neighborhoods. Then they use existing copper lines to offer broadband service using new ADSL technology, which allows them to increase download and upload speeds into the home.

AT&T's project Light Speed, which provides TV service over broadband connections, is already being and is planned for wider deployment within the original AT&T footprint later this year. The similarities in the basic broadband architecture should make it easier for AT&T to extend its next-generation broadband services, such as Internet Protocol TV, into the BellSouth region.

"BellSouth customers could eventually see IPTV much faster through AT&T than they ever would have with BellSouth," said Golvin.

But a merged AT&T and BellSouth may also stifle competition and actually slow down innovation, according to consumer groups such as the Consumers Union and Consumer Federation of America. These groups said they would ask the Justice Department's antitrust division to reject the merger. Critics of the merger fear that a bigger and stronger AT&T would have too much influence in the overall market.

For example, AT&T has already said that it would like to limit or tier services so that Internet companies such as Google or Vonage, which use broadband to deliver services to customers, would pay a fee for using the AT&T access network to reach customers. The topic has been hotly debated on Capital Hill and is likely to be a hot-button issue when and if Congress rewrites the Telecommunications Act. AT&T's CEO, Ed Whitacre, has said publicly that companies that use the AT&T broadband network should not be given a "free ride."

"Merging with BellSouth would give AT&T that much greater market power and command over access networks," said Jay Pultz, a vice president at Gartner. "So I think it's a legitimate concern, considering that AT&T is already leaning toward premium pricing for companies that use their broadband networks to reach customers."

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