[Analysts Say AT&T's Overture To Bells Fraught With Danger]
NEW YORK (Dow Jones)--An AT&T Corp. (T) overture to the nation's five Baby Bells shows the nation's largest long-distance phone company to be in a difficult position, analysts believe. But a link between Ma Bell and her remaining offspring could also leave the five children crying for revenue in the long term.
AT&T sent letters to all five Bells and GTE Corp. (GTE) Tuesday night, inviting them to enter marketing deals similar to ones Qwest Communications International Inc. (QWST) struck recently with Ameritech Corp. (AIT) and U S West Communications Group (USW). Those pacts, which AT&T is fighting in court, would allow the two Bells to offer Qwest's long-distance service to local customers without subjecting themselves to the arduous - and so far, fruitless - regulatory process demanded by the Telecommunications Act of 1996.
Under that legislation, the Bells are barred from the nation's $80 billion long-distance market. BellSouth Corp. (BLS), Ameritech and SBC Communications Inc. (SBC) have all had applications turned down. Bell Atlantic Corp. (BEL) is working its way toward an application in New York state, while U S West has announced its intentions to apply in Montana and Wyoming.
The AT&T plan was revealed by C. Michael Armstrong, the company's chairman and chief executive, at the company's annual shareholder meeting Wednesday in Secaucus, N.J. While AT&T believes the Qwest deals are illegal, it wants to position itself in case it has read the law incorrectly, Armstrong said.
Most Bell companies had yet to react as of Wednesday afternoon, although Armstrong suggested at the meeting some of them had shown interest. Ameritech said it would consider offering AT&T service if AT&T could match the exact terms to which Qwest agreed.
Analysts suggest any such deals carry hurdles for both parties.
"AT&T is in a difficult position," said BancAmerica Robertson Stephens & Co. analyst Timothy K. Horan. "Obviously, they'd rather not have to join with the Bells and sell long-distance. It cannibalizes their business."
Still, he added, "If they don't do it, they're going to lose the business."
And yet, such a move could make AT&T more formidable, suggested PaineWebber Inc. analyst Eric Strumingher. The Bells may feel compelled to offer AT&T's strongly branded service now, he said. And yet, when they themselves are allowed to offer the same service, the Bells will face an enemy already resting on home ground.
"I think the last thing the Bells want to do is make AT&T any stronger," Strumingher said.
Eventually, such alliances could decrease profitability in the industry overall, the analyst said. As companies end up spending more marketing dollars on the same customers who get service for lower prices, revenue will be harder to come by, he said. |
