Telephone giant AT&T Inc. said Sunday that it agreed to buy BellSouth Corp. for $67 billion in stock in a deal that would make AT&T the dominant carrier in 22 states, rekindling fears of a new Ma Bell monopoly.
If the transaction is completed, the seven regional Baby Bell companies created in the government's 1984 breakup of AT&T Corp. would be reduced to three. Industry analysts predicted that more mergers in telecommunications probably would follow.
The proposed marriage of AT&T and BellSouth, the nation's largest and third-largest phone companies, was driven largely by their joint ownership of Cingular Wireless. That mobile phone company and all of BellSouth's businesses would be renamed and folded into AT&T.
The current AT&T is the former SBC Communications Inc., the San Antonio company that provides most phone service in California. SBC adopted the AT&T name after it acquired its former parent company in November.
AT&T and BellSouth said their combination -- which will require approval by shareholders and the federal government -- would save nearly $18 billion in costs and result in an unspecified number of layoffs. The companies employ more than 250,000 people altogether and have nearly 70 million phone lines in operation.
The deal brought immediate protest from consumer groups and others who think the old AT&T monopoly -- which ruled the nation's phones until the forced breakup -- is being reconstituted.
"This is a devastating blow to the consumer," said Gene Kimmelman, policy director at Consumers Union, publisher of Consumer Reports magazine. "This one will lead to the end of the era of falling prices for telephone and cellphone service."
Consumers Union and Consumer Federation of America said they would ask the Justice Department to block the acquisition. If the deal is approved, Kimmelman said, regulators should require the sale of Cingular.
The consumer groups also worried that the combination would leave Baby Bell companies AT&T and Verizon Communications Inc. with the vast majority of local and long-distance customers; a majority of wireless subscribers; and, more important, most of the high-speed digital subscriber lines that many competitors use to deliver such services as Internet phone calls and broadband television.
The third Baby Bell, Qwest Communications International Inc. in Denver, would be dwarfed by the combined AT&T and BellSouth. Qwest serves the sparsely populated Western region outside of California.
"Telecommunications has now gone from a regulated monopoly to an unregulated duopoly with just two major players," said the research director of the Consumer Federation of America, Mark Cooper. "Consumers know that is not enough competition to lower their prices and drive innovation."
Despite such concerns, some industry experts see no major hurdles to completing the deal, particularly given that four major telecommunications takeovers in the last 18 months sailed through antitrust reviews with few conditions imposed.
"There will be a lot of people expressing a great deal of concern, but when the Department of Justice and the Federal Communications Commission do their analysis, they will approve the merger with limited conditions," said analyst Blair Levin at Stifel, Nicolaus & Co. Inc. "I don't see how their analysis changes in any way."
Among the prior combinations were Verizon's acquisition of MCI Inc. and SBC's purchase of AT&T Corp., both of which wiped out the major long-distance carriers and chief local phone competitors to the regional Bells.
AT&T Chairman Edward E. Whitacre Jr., 64, would remain as chairman and chief executive of the combined AT&T and BellSouth. "The merger
BellSouth Chairman F. Duane Ackerman said technological changes that helped consumers manage multiple communications services were "shaping a new competitive dynamic and creating tremendous opportunity."
"We're creating a company with much better capabilities to seize these opportunities," said Ackerman, who would serve as BellSouth region president during a transition before leaving.
Responding to Sunday's announcement, Verizon spokesman Eric W. Rabe said: "From our point of view, anything that provides a stronger competitor to cable [TV] is welcome. Meanwhile, Verizon's business plan remains unchanged." He would not discuss possible takeovers.
Whitacre has long coveted BellSouth, openly remarking that he would like to buy it someday. Talks over the last few months heated up in the last three weeks as the companies took the proposed deal to major investors for their blessings.
The BellSouth acquisition is expected to create savings, starting with $2 billion in 2008 and rising to $3 billion annually by 2010. Most of the savings would come from layoffs and reduced costs at corporate staff levels and in marketing and promotions, particularly at Cingular.