The Giant Returns

Spread over 22 states of US it had a complete monopoly till 1984. Then a Federal judge split the giant in 7 smaller parts. Yeah, it was then ‘Ma Bell’ now known as AT&T. Twenty two years later the split is getting reversed. Already four of the seven babies have joined and now there is a new development. AT&T is set to acquire ‘BellSouth’ for a sum of 67bn US dollars. If this merger gets the go ahead from the regulators then AT&T will again become largest telecom company in US, pushing Verizon to second place.

In recent years no other industry has seen so much of change across the world than telecom. Technological innovations, convergence of services and new ways of communication have made telecom one of the most profitable sectors. When Ma Bell was split in 1984 it was to allow competition to flourish in public interest and today when Ma Bell is reversing the split it is again the competition. One of the collateral benefit of this merger will be coming of Cingular – the mobile phone company, into the folds of AT&T. Till now AT&T and BellSouth has joint holding of Cingular. The ultimate entity will be sort of one stop for services like local, long distance and mobile calls. AT&T has many other benefits to accrue if this merger goes through.

I guess regulators will be taking a hard look at all the facts. Many consumer groups have already gone on record with their opposition to the deal. They believe, if allowed, AT&T will become what it was before 1984 and prices of all the services will increase.

The question is will the regulator think alike? Will they be of view that competition will be eliminated with this deal? The answer for them might be in the technological change that has happened in telecommunication industry in the past few years. The biggest change is that now voice transfer does not depend on telecom companies. Many internet companies like Vonage, Skype and TimeWarner are providing voice services at far cheaper price. At present biggest competition in telecom sector is from these companies which will be very much there even after buyout of BellSouth. But this is not totally in black and white, there are several grey areas. For start, most people have access to broadband internet through the network of the telecom companies which includes AT&T. So will it lead to unfair trade advantage? Difficult to say so but I am sure we will have pretty interesting developments in coming weeks.