Converged communications services will be the big upshot to the merger, they say, and spark more industry consolidation. It will cause a series of major changes in the industry, with companies surviving by offering a range of services: local calling, long distance, Internet access, wireless and TV.
MCI and Sprint could be next, with BellSouth and Verizon possible suitors, several analysts predicted. Network managers also may begin to consider SBC as a possibility for enterprise services, said Bryan Van Dussen, a Yankee Group analyst.
Although the $16 billion stock deal isn't expected to clear all regulatory hurdles and necessary approvals until the first half of next year, it will create a formidable company, combining SBC's strong domestic and local telecommunications holdings, noteworthy hosted IP communications platform and ambitious VoIP plans with AT&T's long-distance, international business.
"The irony of a 'Baby Bell' acquiring AT&T cannot be overlooked, but there is also a compelling logic at play here," said Ovum research director Mike Cansfield. "AT&T is a long distance and international company, SBC primarily a domestic and local business. Both are profitable, but having to fight hard in their respective markets. Join the two, cut out the overlaps and drive synergies. Clearly SBC has decided - rightly - that size matters."
SBC and AT&T executives said Monday that the combined company will make $15 billion in cost savings, and be based in San Antonio, Texas, home of SBC. Almost half of the savings will occur from combining IT and networking operations and will be on top of the cost-cutting measures the companies individually have in place, executives said.
The acquisition is akin to a child moving an aged, ailing parent into the house. In 1984, the AT&T monopoly was split up into eight Regional Bell Operating Companies, or "Baby Bells". The idea was to foster a thriving market for new services though competition and, eventually, a deregulated market.
The Baby Bells were to offer local phone services. It took them years to be able to offer long-distance service, because the Telecommunications Act of 1996 put tough conditions on them entering the market.
While SBC has been steadily gaining ground since then, no one, save perhaps CEO Edward Whitacre, would have guessed his company was about to buy AT&T when he hinted at big news to come this year during his first-ever keynote talk at the Consumer Electronics Show last month.
Owning AT&T's national network - its biggest asset, analysts say - would free SBC from having to negotiate access to that network, though that also effectively kills the era of multiple competitive Baby Bells providing more options to users.
The acquisition means SBC-AT&T will control 27 percent of local US household subscribers, 37 percent of long-distance household subscribers, and 10 percent of all dollars spent on consumer wireline telecommunications services, according to an analysis by market researcher TNS Telecoms.
The deal also affects the wireless market, according to analysts, at least in part because AT&T Wireless Services was bought by Cingular, a joint venture between SBC and BellSouth. However, some analysts predict it will take up to 18 months for the deal to get through regulators. Not only must the FCC and Department of Justice agree, but it also has to get through regulators in 26 to 28 states.
Within hours after the proposed deal was announced, consumer groups weighed in with their disappointment. The deal is a "symbolic reminder" that the US Telecommunications Act of 1996 never led to the level of competition lawmakers promised, said Gene Kimmelman, senior director of public policy and advocacy for Consumers Union. "For most consumers, the communications market is rapidly deteriorating into a duopoly dominated by two firms because of the failure of new entrants to gain a foothold in the market."