This week in telecommunications
With SBC's deal to acquire AT&T and the rise of Skype, the last vestiges of the 20th-century's phone system are fading fast.
SBC Communications on Monday announced plans to acquire AT&T in a $16 billion deal, a move designed to bolster SBC's sales to enterprise customers nationwide and give it new national and global networks.
history of innovation
The deal also ends more than 100 years of independence for AT&T, also known as Ma Bell, which was forced by federal antitrust regulators to break up its operations in 1984. That spawned the creation of the Baby Bells, including SBC, which focused on local telephone services, while Ma Bell served as a long-distance carrier.
The acquisition is a sign of ongoing consolidation among both traditional landline providers like SBC-AT&T and cell phone operators. Cingular Wireless, the mobile carrier partly owned by SBC, catapulted to the top of the U.S. cell phone market in late 2004 by purchasing AT&T Wireless. Additionally, Sprint is buying Nextel Communications, the cell phone operator that caters mainly to businesses. Later in the week, talk heated up about the possibility of Qwest Communications International buying MCI.
Telephone providers have been engaged in a turf war with cable companies and Net phone carriers, which have encroached on the Bells' role as the primary source for delivering phone calls. By the same token, telephone carriers have been looking at ways to expand their markets, by delving into wireless and offering high-speed Internet connections.
AT&T won't disappear completely. SBC plans to keep that marquee brand name in some form or another.
"We value the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world, and it will certainly be a part of the new company's future," said SBC's chief executive, Ed Whitacre Jr.
Edward Whitacre
Chief executive, SBC
For AT&T CEO Dave Dorman, the acquisition by SBC could be a case of deja vu--he's been involved in two such deals now. (Dorman previously played a supporting role in getting Pacific Telesis sold to SBC in 1997.) While he remains head of Ma Bell for now, his title is expected to change to SBC president once the acquisition closes next year. Dorman, 51, will be reporting to Whitacre, 63, who is expected to retire in the next two years.
Even though U.S. carriers are consolidating forces, tech advances such as broadband telephony should keep the price of a local phone call down, industry veterans say. For one thing, the latest technology is giving rise to a new breed of phone operator: one that doesn't have to have its own network. That's injecting much more competition into the local phone market than ever before, with a range of companies, from 7-Eleven to Costco Wholesale to Home Depot, potentially jumping on board.
"It's not that hard to be a telephone company anymore," said a source at Comcast. "The trick is staying in business."
Meanwhile, as major U.S. telephone operators spend billions of dollars to expand, telephone software maker Skype says it's building a global phone network virtually for free. New releases of the Skype software for Linux and the Macintosh are a significant expansion for 17-month-old Skype.
Clearly, the SBC-AT&T combination illustrates how far the traditional phone business has slipped--and how much it needs to change.