Wedding Bells Ring for Ma Bell and McCaw
AT&T and McCaw consummate a multi-billion dollar merger
AT&T and McCaw Cellular Communications celebrated their $11.5 billion marriage last week despite the desperate objections of Ma Bell's babies.
After a year filled with star-crossed telecom ?bermergers self-destructing, AT&T successfully negotiated the deal's final regulatory frontier by securing the blessing of the Federal Communications Commission.
As a result, the nation's largest long-distance carrier is now the nation's largest wireless carrier as well, courtesy of its new business unit, AT&T Wireless Services.
To complete the share-for-share, tax-free stock swap, AT&T will issue approximately 210 million shares, which is expected to cut its 1994 earnings 10 percent. In exchange, it received McCaw's 3.9 million customers and nationwide network of cellular telephone, messaging, data transmission and air-to-ground services.
With the McCaw merger under its belt, AT&T is poised to reenter a market it once deemed insignificant and abandoned. Within little more than a year, the telecommunications leviathan plans to introduce some of the wireless services hyped in its "you will" ads under the AT&T Cellular One brand name.
Whether anyone really needs or wants to be faxed at the beach remains to be seen. But the wireless market is nonetheless bracing for the second coming of AT&T and the immense firepower it promises to deploy in the coming onslaught for cellular market share.
AT&T enjoys a tremendous base of long distance, calling card and equipment customers, a nationwide sales force, the deepest pockets in the industry and the incalculable benefit of the AT&T brand name.
"If there is anyone that has brand name equity in this business, it's AT&T, and they can use all their assets to heavily market all these cellular services; that's the key," said Barry Goodstadt, director of wireless industry consulting, EDS. "I think it's up to the industry to catch them now."
But whether AT&T can translate its newfound local cellular presence into a full-blown return to the local loop depends on its ability to beef up McCaw's existing spectrum, said Goodstadt. However, with PCS auctions around the corner, AT&T can augment their cellular network by buying additional bandwidth, he said.
Indeed, telecom analyst Jerry Lucas predicts AT&T, thanks to the McCaw merger, its technological prowess and vast corporate coffers, will dominate the PCS industry by capturing no less than 60 percent of the market.
Despite so many stars aligned in AT&T's favor, it had to agree to several stipulations in order to win approval of the deal from the U.S. District Court in Washington, D.C., the Justice Department and the FCC.
AT&T must offer McCaw customers the ability to choose a long-distance carrier for their cellular calls, prohibiting McCaw from selling its service under the AT&T name until its network is altered to allow equal access by other long-distance companies, a process expected to take 18 months and cost $1 billion. However, nothing prevents AT&T from selling McCaw services and bundling them with its extensive array of products.
Additionally, AT&T and McCaw must maintain separate corporate structures and financial records, and are forbidden from sharing sensitive information about customers using rival cellular or long-distance carriers.
Finally, AT&T cannot discriminate against competing cellular-service providers when selling them network equipment.
Despite these regulatory safeguards, the Baby Bells aren't enthralled by the thought of competing with their former corporate parent.
Several of the seven Bell siblings fought furiously to kill the deal on antitrust grounds from the moment it was announced, in vain. "I'm sure they are quite worried," Goodstadt said. "They've certainly been behaving as though they are."
But if Ma Bell's children have their way, the merger may be short-lived. Although a U.S. District judge denied Bell Atlantic and NYNEX's request for a preliminary injunction, he did set a Nov. 1 trial date for them to make their case in New York.
BellSouth, meanwhile, beseeched the federal appeals court in Washington, D.C., to reverse the approval granted by Judge Harold Greene. BellSouth's request was rejected, but it was also granted its day in court, scheduled for Oct. 4.
However, few observers give these desperate rearguard actions any chance of success, and AT&T Chairman and CEO Robert Allen dismisses them as a "nuisance."
But the Bells and other cellular carriers have been equally busy scrambling to form their own cellular mega-alliances ever since the announcement of the AT&T/McCaw merger 13 months ago.