AT&T + BellSouth: Big and Scary Nonsense (T, BLS)

Includes: BLS, CMCSA, T, VZ
by: Paul Callahan

Suddenly, the telecom world has become delusional. Why? Maybe it’s the numbers — $67 billion purchase price, $120 billion in sales. Apparently, such big numbers are the financial equivalent to LSD.

Under the influence of this megamoney drug, the leaders of AT&T and BellSouth met over bird hunting in Georgia and agree to convince their respective boards that putting the two companies together would make the combined company more competitive. How is it that the new AT&T believes it can dominate the competition? Scale, my boy, scale.

Really? Let’s take a look at who AT&T and BellSouth are most afraid of — Verizon and the cable guys.

Verizon wireless has better coverage. As reported by the New York Times, Verizon’s wireless is very profitable and is lambasting the competition with a simple and annoying concept: build a wireless network in the US that actually works. How’d they do it? Verizon stuck with CDMA technology instead of cutting over to the old euro-standard, GSM. Not only does CDMA require fewer base stations to cover the same area as GSM, but Verizon was able to build on an existing infrastructure. AT&T and Cingular only recently cutover to GSM and will need to spend billions to provide the same.

Cable’s triple play is triple pay. Comcast and others have proven they can deliver voice and data as well as video content. That has increased average revenue per user significantly at the expense of the telcos. Going in the other direction is much harder. Do you know anyone who is buying their TV services over DSL? Believe me, it’s not easy over today’s twisted-pair copper network.

Honestly, I cannot see how combining two companies that cannot compete in these two areas improves their situation in any dimension.

But if somehow the combination of AT&T and BellSouth can fix both of these problems — spending billions to fix their swiss cheese GSM network, and magically figuring out how to deliver content — then I’ll believe this merger has some value. Until then, it is nothing more than two old boys slapping each other on the back.

● Related:
Initial Reactions To AT&T’s BellSouth Acquisition

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