After The AT&T/BellSouth Merger -- What To Expect Next in Telcoland
(BLS, T, VZ, CMCSA, S, CVC, TWTC, Q)
Predictions made in March, 2007:
Andrew Schmitt submits:
It's funny to watch the various media groups go through the customary
'Shock and Awe' of a big merger, which in my mind, was as logical as a
merger between Oreo Cookies and Milk. The question was not if it would
happen, only when and for how much. I am particularly entertained by
the consumer groups acting in mock surprise and voicing opposition to
the merger.
Like it or not, big Telco was already back in style. Nothings changed,
it's just that more people are starting to notice.
I'll make a few statements that express my opinion of what sort of
landscape we will be looking at in 12 months. None of it is new
thinking, just additional events that we feel are logical conclusions:
* AT&T buys Bellsouth. The merger is approved by the FCC with the same
terms applied to the SBC/AT&T merger. Regardless of concerns, the fact
is AT&T and Bellsouth don't share a customer base today so it isn't
anti-competive in the sense it offers consumers less choice. The
merger is driven by one thing only: a need to unify ownership of
wireless and wireline assets. Acquisition of additional voice
subscribers within Bellsouth and the additional scale is
secondary. This gives AT&T complete freedom to market universal
wired/wireless voice services to residential customers, something
Vonage, Sunrocket, Comcast, Time Warner cannot do.
* Verizon buys the 40% share of Verizon Wireless it does not own from
Vodaphone. The negotiation is rather odd in the sense that only one
real buyer exists for the property, and Vodaphone cannot currently
extract any real strategic value from its share. Verizon gets a good
deal.
* Comcast (CMCSA) buys Sprint/Nextel (S). This gives them the same
ability as Verizon and AT&T to offer unified wired/wireless voice to
subscribers. AT&T and Verizon both have their own enterprise business
units and backbones so the Enterprise connectivity business unit of
Sprint is most valuable with a carrier that currently lacks this
capability - Comcast. While Sprint/Nextel is the most favored Telco on
Wall St, I've heard that the Sprint/Nextel merger is a disaster,
with both original companies maintaining separate HQ's. Comcast's
CEO Roberts will put their executive teams out of their misery.
* Comcast has secured the last remaining wireless property and have an
Enterprise business unit, therefore Cablevision (CVC) and Time Warner
Telecom (TWTC) are exposed and capitulate to Comcast. Now that Telcos
have the will and technology to offer video, no major regulatory
barrier exists, and a merger of a single national coax based carrier
is born as Comcast, Time Warner, and Cablevision unite in order to
acheive the scale to meet the new Telco threat.
* Wildcards: Qwest, T-Mobile. Qwest (Q) could go to Comcast to provide
an Enterprise service unit, though they might also be acquired by AT&T
or Verizon in a defensive move. Deutche Telekom will sell their
wireless business before all of the above mergers take place. T-mobile
is worth more now than it ever will be as the number of prospective
buyers dwindles. If Comcast cannot buy Sprint, they will buy T-Mobile
and Qwest. It's also possible Time Warner/Cablevision buy T-Mobile
to compete with Comcast/Sprint.
That leaves us with three major carriers for Enterprise services, one or
no standalone wireless companies (although MVNO's will still exist, and
may be more valuable), and residences with a choice of two wireline
options. Wireless and wireline as products lose distinction and companes
bundle them together. Standalone VoIP companies that charge for service
vaporize as wireless voice becomes the prime mover for customer retention.
The other area that will finally see dramatic change is the equipment
supplier space, as these new behemoths whittle down their equipment
supply chain. Om Malik sees this as very good for Optical Ethernet,
though I am not sure why. I think it's going to be good for suppliers
to the old SBC as well as Sprint. Two equipment companies that fall
into this category are Ciena (CIEN) and Adtran (ADTN). Expect to see
Huawei to show up in North America at the same time.
Bottom line, anyone who was shocked by the Bellsouth announcement just
hasn't been paying attention. The next steps are just as logical in my
mind.
Andrew Schmitt (schmitt@telecom-digest.org)