News that AT&T Inc. would acquire BellSouth Corp. quickly sent ripples of rampant speculation through the industry, as observers tried to calculate the implications of the deal. Immediate reactions focused on the response from Verizon Communications Inc. and whether it would seek to bolster its position by buying out Vodafone Group plc’s 45-percent stake in Verizon Wireless, or possibly by acquiring other telecom companies such as Alltel Corp. or Qwest Communications International Inc.
“A lot of what happens next depends on what Verizon decides to do, because it’s widely thought that they might feel the pressure to get bigger or respond in some fashion,” said Jonathan Atkin, telecom analyst for RBC Capital Markets.
Verizon reiterated last week that it is working to acquire the Vodafone stake, and company officials have made it clear during the past few months that they are eager to work with Vodafone on a deal that would result in full ownership of Verizon Wireless by Verizon.
Atkin noted that the funds raised from a sale of Vodafone’s Verizon Wireless stake could be used to make an offer for Alltel Corp. or Sprint Nextel Corp., or to buy spectrum in the upcoming advanced wireless services spectrum auction scheduled for June.
While most analysts expect that the switch to one parent would have little operational impact on Cingular Wireless L.L.C., analyst William Ho of Current Analysis noted that it is yet another integration headache for Cingular, and that competitors may be able to exploit an opportunity to “recreate the chaos and customer turnover in the time following the AT&T Wireless merger,” when Cingular had a hard time with subscriber losses.
But as far as industry impacts, the results of the re-emergence of a dominant AT&T still remain to be seen. The number of players in the wireless space remains the same, Atkin pointed out-but now Cingular will have access to a wireline parent with a far greater footprint to cross-sell and bundle services, if the deal goes through.
On the wireless side, “Verizon’s still got a bit of an advantage over everybody else,” said Dominic Endicott, wireless practice leader at Adventis. “They have a single network, they have a very clear evolution path, and both Cingular and Sprint have the challenge of managing multiple networks.” T-Mobile USA Inc., Endicott added, still faces spectrum shortages and the challenge of upgrading its network to HSDPA wireless broadband.
But when it comes to bundling services for a quadruple play of high-speed Internet, landline voice, video and wireless, some analysts saw Verizon and Verizon Wireless as trailing the pack, with Sprint Nextel taking the lead.
“Verizon is going to struggle here, because they’ve got to figure out how to do more packaging across a wider range of services,” said Bob Egan of the Tower Group, adding that the wireline and wireless sides of Verizon “don’t talk to each other.”
Meanwhile, Sprint Nextel expects to offer its first converged services with its cable company partners in seven markets in the third quarter, company officials said last week. From the perspective of Andrew Cole, president of TMNG Strategy, “Sprint and the cable companies are ahead, no question.” He estimated that within the next two years, Sprint Nextel’s alignment with cable could mean “a huge, seismic shift” that might result in the carrier capturing up to half of net customer additions.
