Hello? The new telecommunications world is sure starting to look a lot like the old telecommunications world, full of giant companies about as eager to compete with each other as pay-phone operators are to refund your quarter when your call gets messed up. Instead of competing, the giants are combining by buying each other.
Take last week’s stunning development: the news, revealed in The Wall Street Journal, that AT&T and SBC Communications were negotiating what would be the biggest merger in the history of the world. This combination of the country’s largest long-distance company and its largest local phone company would effectively reverse a good part of the 1984 AT&T breakup, which separated local service from long distance. Assuming, of course, that such a deal goes through. That’s a big assumption given the hurdles this combo faces.
Gee? GTE? An alternate possibility is that AT&T’s real heartthrob is GTE Corp. and that AT&T leaked news of its SBC talks to make GTE come across. GTE would be an especially desirable partner because it’s already in both local and long distance, it’s not covered by the restrictions of the 1984 AT&T breakup and it’s exempt from some constraints of the 1996 Telecom Act. Things may be clear by the time you read this; last week everything was murky, and no one would talk on the record about anything.
Having behemoths like AT&T, SBC and GTE devour each other isn’t quite what Congress had in mind when it passed last year’s Telecom Act. The act lets local phone companies enter the lucrative long-distance business provided that they open up their own markets to competitors. But you can expand quicker by buying than by building. Take Bell Atlantic. Instead of competing with neighboring Nynex, which is arguably the most vulnerable Baby Bell because of its high prices and crummy service, Bell Atlantic is buying it. SBC, the former Southwestern Bell, has already bought Pacific Telesis. So the original seven Baby Bells are down to five. Meanwhile, MCI, the No. 2 long-distance company, has a pending deal to sell itself to British Telecom. Sprint, No. 3, has formed a joint venture with giant French and German phone companies. Time Warner, the nation’s No. 2 cable company, has largely given up its plans to get into the local phone business. And big phone companies have pretty much given up on moving into cable. Someday things may work as planned, but the results so far aren’t encouraging.
What’s going on here? ““In a time of uncertainty, it’s not surprising that different companies would look for the comparative security of mergers and consolidation and joint ventures,’’ Federal Communications Commission chairman Reed Hundt said in an interview with my NEWSWEEK colleague Michael Hirsh. ““That’s why government has to come in and say, “This is OK, and that is not OK.’ Now where that line is, we haven’t said it clearly yet.''
What is clear, though, is that an effort by AT&T to combine with SBC or GTE would turn the grumbling over telecom megamergers into an uproar. AT&T would become a lightning rod for criticism of galloping gigantism the way it drew fire for downsizing by announcing 40,000 job cuts last year.
That AT&T is considering an SBC or GTE deal shows how it has fallen since 1984 - and how the world has changed. In 1984 AT&T gave up its local phone business in return for being allowed to keep its computer and equipment businesses. Last year AT&T unloaded computers and equipment, and is hot to get into local phones. To be blunt, AT&T is a mess. It’s losing market share in long distance, it blew billions on computers, it botched international expansion.
There’s also turmoil in the executive suite. High-level defections have plagued AT&T, most notably the 1996 departure of Alex Mandl, president and heir apparent to chairman Robert Allen. AT&T hired a new president, John Walter, last October. But Walter, 50, has clearly irritated Allen, 62, by acting as if he expected to actually run things. Allen has reportedly told prospective partners there’s no reason to give Walter the top job. Combining AT&T with another mongo phone company would allow Allen to solve the succession problem and declare victory. AT&T declined comment, and a spokeswoman said that neither Allen nor Walter would talk.
AT&T, formerly the Bell System, isn’t just another company that’s lost its way. Its badly battered shares are owned by more U.S. investors than any other stock, and it reaches out and touches millions of people on a regular basis. Now this once great outfit has been reduced to trying to get some other phone company to help solve its problems. That rumbling noise you hear is old Ma Bell spinning in her grave.
