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Monday, January 31, 2005
SBC Agrees to Acquire AT&T for $16 Billion

SBC Communications concluded a $16 billion deal this morning for its former parent, AT&T, that would lead to the virtual disappearance of one of America's best known corporate icons and set off what promises to be a new round of competition between the Baby Bells.

In buying AT&T, its national network and three million corporate customers, SBC can aggressively expand into the turf of its regional Bell siblings, who themselves are grappling for ways to move beyond their borders.

AT&T, the former monopoly, has been undone by cheaper Internet technology, growth in a cellphone industry where it has no role, and regulatory changes that squeezed it out of the local phone market.

"Today's agreement is a huge step forward in our efforts to build a company that will lead an American communications revolution in the 21st century," SBC's chief executive, Edward E. Whitacre, said in a statement.

He added: "We are combining AT&T's national and global networks and expertise with SBC's strong platforms and skills in local exchange service, wireless and broadband. It's a great combination."

Mr. Whitacre will serve as chief executive of the new company, and AT&T's chief excutive, David W. Dorman, will be president. Mr. Dorman will also be given one of AT&T's three seats on SBC's board, which now has 16 members. The headquarters for the new company will be in San Antonio.

The AT&T brand and operations are expected to survive inside SBC, which has its roots in the Southwest. But it will disappear as an independent company that for generations provided reliable phone service to the masses and steady returns to shareholders, and at its height employed more than one million workers.

"AT&T was America's answer to Communism, serving everyone's needs," said James E. Katz, a telecommunications historian. "But neither Communism nor AT&T is suited to capitalism in the 21st century. Like other once-dominant players, when the technology changed, it couldn't survive."

Consumers would be largely unaffected by SBC's purchase. AT&T, based in Bedminster, N.J., has stopped marketing its traditional local and long-distance services and prices for these products have been falling steeply regardless.

In expanding nationally, SBC hopes to create a company that largely resembles but does not equal the monopoly popularly known as Ma Bell that was broken up in 1984. The acquisition would vault SBC past Verizon Communications, which itself became the nation's biggest telecommunications company when Bell Atlantic bought GTE in 2000.

SBC will pay $15 billion in stock and $1 billion in cash, an amount based on AT&T's closing price of $19.71 on Friday. The new company will have combined annual sales of $70 billion and 212,000 employees.

As to the company name, Mr. Whitacre said, "We value the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected throughout the world, and it will certainly be a part of the new company's future."The companies, which expect to generate about $15 billion in cost savings and new revenue, have not decided how many jobs they plan to eliminate. But industry analysts expect SBC to lay off large numbers of workers in AT&T's shrinking consumer division.

Regulators and AT&T shareholders must approve the deal and they could request certain divestitures. The outgoing chairman of the Federal Communications Commission, Michael Powell, however, signaled last week that the acquisition would not face stiff resistance.

SBC, formerly known as Southwestern Bell, was one of AT&T's oldest affiliates. When AT&T's monopoly was broken up, the company became one of the seven regional Baby Bells.

In one shot, SBC will now become the biggest long-distance carrier and the largest provider of phone and data services to corporate America. SBC also provides local phone service to more than 50 million customers in its 13 states and holds a 60 percent stake in Cingular Wireless, the country's biggest mobile phone company.

In taking over AT&T's $22 billion corporate phone and data business, SBC will add a new source of revenue that will offset the decline in its residential phone business, which has been shrinking with the spread of cellphones and the Internet.

With AT&T's network, SBC will gain the ability to sell services to customers outside its region, which includes California, Texas and Illinois. This threatens to turn the Bells into direct competitors instead of opportunistic allies that teamed up to fight rivals, regulators and others who have tried to loosen their grip on local service in their regions.

To counter SBC's gambit, the other Bells may consider buying MCI or Sprint, which also sell services to big companies.

From NY Times

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