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Latest telecom merger makes you kind of miss Ma
By Jon Talton, Columnist
Arizona Republic
Thursday, March 16, 2006

AT&T's proposed $67 billion acquisition of BellSouth provoked a moment of worry in the zombie America of work-drive-shop-sleep:  that the deal would revive the old Bell System, broken up by the government in 1984.

The reality will be far different.  The new AT&T will have some of the vices and none of the virtues of the old Ma Bell.  It will likely be imperious and unresponsive in its service areas, especially for local phone service.  But it will not be a reliable, one-stop national network like the old AT&T, nor will it have the safe profit stream to provide secure jobs or the breakthroughs of the old Bell Labs.

The new AT&T is really one of the old Ma Bell's babies, spun off as regional phone-operating companies in 1984.  Southwestern Bell became SBC Communications and acquired Pacific Telesis, another Baby Bell.  When SBC bought what was left of the old AT&T, after years of mismanagement had wrecked that proud American blue chip, the San Antonio-based company changed its name to AT&T.

Still with me?

If the bogeywoman of Ma Bell is bogus, it doesn't mean the deal is without flaws.  Soon after it was announced, SBC officials kowtowed before Wall Street to promise 10,000 jobs would be cut.  If the stock doesn't do well, and I mean pronto, baby, then more job cuts will follow, many more.

Make no mistake:  This merger is all about Wall Street.  Most mergers fail to deliver benefits to either shareholders or customers, much less to employees.  But they produce big payoffs to the investment bankers and lawyers that handle the deals.  Goldman Sachs and Lehman Brothers have announced record profits in an economy where most people are barely keeping even with inflation.

The executive class that runs most big companies today is happy to play along.  For example, in Capital One's $14.6 billion acquisition of North Fork, the acquired company's CEO gets a $185 million payout.  Beats working.

Proponents of the SBC deal say the bigger company will be more innovative.  Where will they get the money?  There's a reason why the United States is behind other leading industrial nations in broadband, despite all our vaunted competition.  Broadband is basic to an entire new generation of products and services.

Again, this is Wall Street's deal, and its expectations are for superior profit margins.   That requires a manic focus on short-term results, often at the expense of such "frills" as research and development.  This is especially true in the telecommunications sector, where investors have been repeatedly disappointed.  It will take an unusually disciplined company leadership to resist those pressures.

No doubt antitrust regulators will wave through the deal.  One wonders what kind of combination nowadays would cause the government to stand for the public interest. John D. Rockefeller?  The intergalactic Borg?

Even though the two companies don't overlap much in traditional terms, the merger does take away competition for the highest-end innovations and services.  And it will be a blow to the stewardship of BellSouth in its headquarters city of Atlanta.

I'm still waiting for the benefits of the telecommunications deregulation act of 1996.  Near-monopoly power continues in most areas.  Hundreds of thousands have lost their jobs.  Makes me almost miss the old Ma Bell.

Reach Talton at jon.talton@arizonarepublic.com.
Read Talton's daily blog at www.taltonblog.azcentral.com.

http://www.azcentral.com/arizonarepublic/business/articles/0316talton0316.html