AT&T Buy Will Speed SBC’s VoIP Plans

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SBC Communications Inc. executives last week said the regional phone company’s proposed $16-billion purchase of AT&T Corp. would likely speed the rollout of SBC’s residential Internet-based phone service as well as making the Project LightSpeed fiber-to-the-node project more cost effective.

As the telecommunications industry began digesting the latest megadeal, SBC was painting a picture of stepped up competition.

“What this does is accelerates our ability to migrate to IP in the local platform,” said Randall Stephenson, SBC chief operating officer.

AT&T has launched voice-over-Internet protocol service under its CallVantage umbrella, but SBC’s VoIP activities have been focused on business customers, not residential users.

LEVERAGING UP

“AT&T has a very impressive VoIP product,” Stephenson said. “We are in the process of developing that product. So we will be basically be leveraging off what AT&T has already done. It allows us to accelerate IP into the local platform.”

According to Stephenson, with LightSpeed, “when you start moving video and high-speed data by the volumes we’re talking about in deploying LightSpeed, the kind of backbone capacity that AT&T brings to bear here is really exciting. There’s some significant savings, synergies and time-to-market opportunities by virtue of having this asset. So we’re really excited about it. This does nothing but accelerate our opportunities with Project LightSpeed. It gets us to market quicker with VoIP.”

AT&T has largely abandoned the local phone business and its long-distance service has been under assault by SBC and other regional Bells.

But AT&T remains strong in the business market, which represents 75% of its total revenue. AT&T has a national backbone and significant software and back office systems in place for broadband applications.

SBC paints itself as strong in local markets, as well as with small and medium sized businesses.

The deal will save the company long distance and interconnection costs, and provide a national IP backbone for a host of services.

SBC will combine the long-distance operations of both companies and move all long-distance traffic to AT&T’s network.

SBC will also move its Internet traffic to AT&T’s backbone, Stephenson said, and network operators will be combined. Field forces will be merged, he added, with a combined synergy savings estimated at $15 billion, with 13,000 job cuts forecasted.

“The industry has already moved from standalone products like long distance and local service to bundled services,” said David Dorman, AT&T chairman and chief executive officer. “The next step in the transformation is to move from bundling to true integration services with unified communication.”

Executives sketched out a 17-month timetable to get the deal approved, including OKs from the Federal Communications Commission, the Justice Department and up to 28 states. Whitacre said the companies plan to file information immediately with these jurisdictions and hope to close the deal this time next year.

BUSINESS RIVAL

If the deal does go through, it could make for some interesting bedfellows. Although Comcast Corp. signed a deal late last year with Level 3 Communications for Internet backbone capacity, the MSO still has a legacy deal with AT&T for both backbone transport and circuit-switches.

Comcast uses AT&T circuit switches to route traffic for its current circuit switch customers. Comcast plans to migrate those customers over to the soft switches it’s installing for VoIP rollouts that begin this year, so the MSO could be in position to wean itself from the AT&T deal.

MSOs have made some inroads in the business market, but a Cox Business Services spokesman said the company didn’t believe the merger will have much effect on its business. Cox has largely stayed away from AT&T’s large corporate accounts, concentrating efforts on small to medium-sized businesses where it believes it has competed effectively against the telcos. In some cases, local cable business divisions have leased high capacity transport to national players like AT&T which did not have the local capacity build there. This could change, at least in SBC markets, where the company would likely have transport for AT&T’s large corporate customers that need to reach smaller markets.

Wall Street reaction to the deal was mixed. Some analysts wondered how SBC could push into video and digest AT&T at the same time.

“We are concerned that with all of the other distractions facing SBC’s management (wireless integration, cable entry and the company’s accelerated FTTN deployment) that a merger with AT&T is not likely in the best near-term interest of shareholders,” Sanford C. Bernstein & Co. analyst Jeff Helpern wrote in a research note.

“With the merger expected to take as long as a year to close, we believe SBC will be subject not only to market reaction to its own reported results and the impending impact of cable telephony on its consumer business, but also to market reaction to AT&T’s operating shortfalls until the merger is consummated,” he added.

The distraction could spread to other telcos. Some analysts raised the specter that Verizon might go after a long distance company, perhaps MCI Inc. or Sprint Corp., which is digesting a purchase of Nextel Communications Inc.

Should Verizon enter the merger waters, it’s unclear what affect that would have on its fiber-to-the-premise buildout that stands to raise the competitive ante with cable on high-speed Internet and core video.

The combined companies will have 77,000 route miles, 750 points of presence, 26 advanced data centers, 52 million access lines, 5.1 million digital subscriber lines and through SBC’s Cingular joint venture with BellSouth, 49 million subscribers.

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