SBC Communications Inc. was originally drawn to Southern
New England Telecommunications Corp.'s cellular operation in Rhode Island, and it
ended up agreeing to buy the whole phone company for $4.4 billion in stock.
SBC also likes SNET's long-distance business, which
claims about a 40 percent market share of its local phone customers in Connecticut. That
marketing savvy could help SBC, especially if its recent court victory on entering the
long-distance business holds up on appeal.
But a big question for cable operators is: Will SBC decide
to keep SNET in the cable business? That may not be answered for some months, while SBC
seeks approvals for the deal. By that time, the network may be too big to scrap.
SBC scrubbed Pacific Telesis Group's cable plans when
it completed buying that regional Bell operating company last year, even though it had a
franchise with cable customers in San Jose, Calif. SBC also halted its own cable trial in
Richardson, Texas, and it agreed to sell its Washington, D.C.-area cable systems last year
to a group led by Prime Cable. And SBC pulled out of the Americast video consortium, which
Analysts said it's way too soon for cable to declare
victory, even though Cablevision Systems Corp., which is bearing the brunt of SNET's
Americast cable push, saw its stock rise after the deal was announced last Monday.
Cablevision and Tele-Communications Inc. spokesmen declined
to comment on the deal last week. TCI offers phone service in the Hartford, Conn., area,
and Cablevision intends to launch phone service, beginning with business customers,
sometime in the next few weeks.
SNET has the only statewide cable franchise in its
one-state market, and that is considered a big advantage over the competition and a
valuable asset. To that point, New England Cable Television Association executive vice
president Bill Durand said last week that if a cable company had agreed to sell itself one
year or so after the 'gift' of a statewide franchise, 'we would be accused
of trafficking in the franchise.'
Further, while SNET is only marketing cable to about 75,000
homes in six towns, its hybrid fiber-coaxial cable network passes about 300,000 homes.
That's a considerable investment and more progress than either PacTel or SBC made
before SBC pulled the plug on those cable operations, Bear Stearns & Co. analyst
William Deatherage noted.
'Clearly, SBC has questions about the business model
for video -- questions both about the cost and the state of the technology,'
Deatherage said. 'The question is: Is there anything that makes the situation
different in Connecticut than in the Southwestern states and in California? The answer is:
to a degree.'
Deatherage said he believes that SNET will continue rolling
out cable service, at least during the months that it will take for the deal to be
approved. The rollout may go more slowly than before, though. And after that, SBC will
review the situation and decide what to do next.
The two companies say SNET will keep on expanding its cable
'We are continuing to build' the so-called I-SNET
HFC network, said SNET spokeswoman Beverly Levy. She said added that SNET Americast has
penetrated about 20 percent of the areas that it has marketed, which would be about 15,000
subscribers. SNET has 69 customers making local calls over the integrated HFC network.
Some analysts said last week that phone competitors in
Connecticut, such as cable companies, might benefit from the merger if regulators tack on
stiff requirements that SBC-SNET encourage competitors. Such conditions were imposed on
Nynex Corp. and Bell Atlantic Corp. by regulators approving their merger last year.
AT&T Corp. chairman Michael Armstrong said last week
that the deal was an 'incremental event,' but he added that it might have
'positive potential' to induce regulators to pry open local markets.
Rep. Edward J. Markey (D-Mass.) vowed to oppose the deal,
saying that SBC was trying to re-create the old AT&T local phone monopoly. Some
analysts last week said the enlarged SBC might be a more attractive merger candidate for
Bell Atlantic, as its territory surrounds SNET's.
Analyst Richard Toole of Merrill Lynch & Co. said
SBC's move into Connecticut presents opportunities for a more potent competitor to
Bell Atlantic in the region, and that should be seen as a plus for consumers.
Toole said SBC became interested in SNET when SBC was
trying to expand its existing cellular business in New England. SNET -- which was not
subject to the Bells' 1982 prohibition against carrying long-distance calls -- has
also signed up 40 percent of its local base as long-distance customers. AT&T and other
competitors have grabbed a much smaller slice of the in-state long-distance business.
The SNET acquisition furthers SBC's aim to become a
national telecommunications player, Toole said. SBC also saw plenty of growth potential in
high-margin services such as second phone lines and caller ID: SNET's penetration of
those services lags well behind SBC's, he said.
For its part, SNET executives said they had success with
new products, such as Internet access, but they were beginning to feel that the company
was too small to compete effectively. Competitors, including cable, were 'coming in
on all sides,' Toole said.