Last year, San Antonio-based SBC Communications swallowed the much smaller AT&T Corp., but then started using the venerable AT&T brand for the merged company. This year, SBC/AT&T is attempting to eat BellSouth Corp. in an estimated $67 billion deal, which is a much larger acquisition than the SBC-AT&T merger of last year.
The proposed merger continues a trend in the telecommunications industry over the past several years that really is a reaction to what happened in the industry after the court-ordered 1984 breakup of the old AT&T or “Ma Bell.” That break-up led to a restructuring of the entire industry and then the landmark 1996 Telecommunications Act enhanced head-to-head competition between phone companies for customers.
Since that time, long-distance phone rates have decreased substantially as consumers have many more options for such service. Meanwhile, cable companies are increasingly offering phone service as part of their consumer packages, declining prices on wireless calling plans have induced some consumers to forego traditional landlines entirely, and broadband connections are generating an entirely new new industry that allows calls to travel over the Internet.
Thus, in the wake of that competition, AT&T CEO Edward Whiteacre justified the new merger because AT&T needs “a bigger footprint. The world is changing. There is more competition.” Maybe so, but as with Hewlett-Packard’s acquisition of Compaq and Comcast’s failed bid for Disney, is the acquisition price for BellSouth so high that — as Professor Ribstein has observed — it takes a near-delusional synergy theory for AT&T management to justify it?