AT&T’s purchase of BellSouth, the latest salvo in the war over bundled services, is sending shudders through the cable biz even as some experts question the significance of the threat.
AT&T announced Sunday that it intends to acquire regional carrier BellSouth in a move that essentially re-creates telecom titan Ma Bell and gives the combined company full control over wireless firm Cingular.
For the entertainment biz, the move intensifies an arms race that has seen cable companies and telcos battle to offer packages of broadband, cable and phone services known as the triple play.
Like competitor Verizon, AT&T has been pushing into video, prompting fear and maneuvering from the cable companies.
This merger instantly bumps AT&T’s total consumer count up to 70 million and gives it a stronger technology platform with which to become a cable biz player; AT&T’s development of IPTV dovetails with BellSouth’s wide distribution of fiber-optic cable.
The news unsettled a cable industry already nervous about telcos’ TV ambitions.
On Monday, the National Cable & Telecommunications Assn. sent a strong letter to lawmakers arguing that as Baby Bells shrink, their biz was the last best hope for a free market.
“With the announcement of the AT&T-Bell South merger, they are on the verge of re-creating Ma Bell. And only one competitor really stands in their way: the cable industry.”
Letter, which noted that the market cap of the new AT&T would be larger than that of the entire cable industry, stopped short of asking that regulators stop the merger.
But insiders suggested country’s largest cablers would be entering a heavy lobbying phase.
There were some signs that politicians would be receptive. On Monday, House Judiciary Committee chairman F. James Sensenbrenner Jr. (R-Wis.) issued a strongly worded statement expressing fear of both consolidation and higher prices, saying the committee would “aggressively scrutinize” the deal.
The merger would nearly double the territory AT&T shares with Comcast to a whopping 82% and more than double its overlap with Time Warner to 68%, which may be what prompted Pali Capital’s Rich Greenfield to write that “a wider video over fiber rollout would be a long-term negative for cable operators.”
But the merger may not hold all of the benefits AT&T might hope.
In the short term, Greenfield and others said the company will likely be more tied up trying to clear regulatory hurdles and increase the reach of Cingular than encroach into cable.
And even down the line, company could face delays and expensive cost of video rollout. AT&T’s IPTV venture Project Lightspeed has not moved as quickly as some expected.
“The phone companies are so much further behind on video than we are on telephony,” said one cable exec.
Observers said that despite the potential for a larger cable footprint, wireless was the thrust of the deal.
“It’s interesting to me that telecoms continue to see opportunities to grow business in their core telephone business,” said UBS Warburg’s Aryeh Bourkoff. “It almost gives the cable industry a respite from the verbiage and strategy that the telecom companies are employing.”
Other fallout could be significant.
On Monday, experts raised the possibility that a cable company like Time Warner could respond by buying a regional operator like Cablevision, Insight or Charter. (Comcast probably couldn’t acquire an operator without raising regulator eyebrows.)
On the satellite side, the fact that AT&T chief exec Ed Whitacre will run the combined company could mean DirecTV will see a dropoff in new subs. DirecTV has an exclusive deal with BellSouth to offer phone service while EchoStar has a pact with AT&T, and analysts said they expected the combined company to give preference to the EchoStar deal.
Nets, meanwhile, would embrace an emboldened, video-hungry AT&T, since a new bidder would drive up the price of content.
Still, overall effect would likely not be an expansion in cable biz.
“You can’t assume that there’s enough for everyone,” said Georgetown U. tech prof Linda Garcia of the bundled-services war. “Some will really win the prize and others won’t.”
(John Dempsey contributed to this report.)