Local Exchange Carriers Could Benefit Most From Merger
(05/11/98; 4:48 p.m. ET)
By Gabrielle Jonas, TechInvestor
techweb.com
Ameritech and SBC's planned merger puts pressure on
rivals Bell Atlantic and AT&T to make similar moves,
but it may be a boon for their smaller brethren, the
competitive local exchange carriers (CLECs), analysts
said.
Ameritech [AIT] soared on news Monday that it had
agreed toa $62 billion merger with SBC
Communications [SBC] that, if approved, would create
one of the world's largest telecommunications carriers
and one with nationwide reach in the United States.
"It's stunning," said Rob Rich, senior vice president of
telecommunications research at Boston's Yankee
Group, of the merger. "It will result in an extremely
strong company that will become a large, formidable
opponent to AT&T, Bell Atlantic, and the others. We
are looking at the basis of a national carrier."
The merger appears to fly in the face of what Congress
had in mind two years ago when it passed the
Telecommunications Act.
"The initial idea of the Telecom Act was to have a lot of
choices for the consumer and businesses," Rich said,
"but ultimately all this consolidation is going to offer
fewer choices, and we'll probably end up with an
oligopoly of leviathans."
But Frank Murphy, a stock analyst with Wheat First
Union, said he believes the merger could spur
competitors on rather than hurt them. "The irony is the
creation of a larger monopoly could actually accelerate
competition as long-distance providers and potential
competitors accelerate their efforts in order to stop
losing ground to the incumbent monopolies."
And CLECs will not be left out in the cold. Rich said he
believes the merger will probably drive up the premiums
of the CLECs, such as Teleport [TCGI], GST [GST],
and e.spire [ESPI].
That's because Ameritech and SBC will focus on
national and international accounts and look for a
CLEC to buy to expand its local market coverage.
"Manhattan has at least seven different fiber-optic rings
already," Rich said. "The simplest and fastest away for
Ameritech to enter these additional markets is to buy a
CLEC."
That would be the preference of local governments, as
well, Rich said, as city governments tire of digging up
streets to lay down more fiber. "There's enough fiber
out there already to carry the traffic," he said.
Murphy agreed. "For a CLEC, this merger is actually
very good news," he said. SBC and Ameritech are
"showing the real attractiveness of the local phone
market and thereby validating the attractiveness of the
CLEC industry."
The merger also underscores the need for CLECs to be switch-based. "SBC highlighted access-line momentum as its goal, so those CLECs who have it will be
higher-valued," Murphy said.
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