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Wednesday May 13, 1:42 am Eastern Time
FOCUS-SBC-Ameritech deal offers mixed blessing
By Jessica Hall
NEW YORK, May 12 (Reuters) - SBC Communications Inc.'s (SBC - news) proposed $61 billion acquisition of Ameritech
Corp. (AIT - news) may be a boon for some small rivals despite criticism that the deal would stifle competition.
SBC's blockbuster deal, the largest in the telecommunications industry, reunites three of the seven original Baby Bells created
by the breakup of ''Ma Bell'' in 1984. The deal is expected to hang in limbo for more than a year as regulators study its
implications.
Critics contend that the behemoth would trample the competitive local exchange carriers, or CLECs, as they are known in the
industry, which are a new breed of small local phone companies that lack SBC's and Ameritech's deep pockets and strong
brand names.
The CLECs, however, could benefit if SBC and Ameritech are forced to open their local market to gain approval for the
merger. Also, the CLECs may be helped as SBC and Ameritech look for partners or new acquisition candidates, analysts said.
''The positives outweigh the negatives for the CLECs,'' Stephanie Comfort, a telecommunications analyst with Morgan Stanley,
said.
In order to gain regulatory approval for the deal, SBC and Ameritech likely will need to make major concessions to open their
13-state local telephone market to competition -- benefiting new entrants and CLECs trying to move into their territory,
analysts said.
SBC and Ameritech have been accused of making only incremental steps to open their local market, stalling the entrance of
competitors.
AT&T Corp. (T - news) and other opponents of the deal said regulators should not approve it unless consumers in their
regions have a real choice in local phone service.
Under the 1996 Telecommunications Act, the Baby Bells cannot enter the long-distance market unless they open their local
markets to competition.
The desire to enter the long-distance market and the new need to win approval on their merger could be the motivation SBC
and Ameritech need to open their markets and be more liberal with competitors, analysts said.
''To get this deal done, SBC and Ameritech will have to be extremely pro-competitive in opening their local markets,'' said
James Henry, a telecommunications analyst with Bear Stearns.
The CLECs could also benefit from SBC and Ameritech's plan to move into 30 new markets outside their core region, analysts
said. The merged company may build its own networks in these new cities, but it would be faster to buy or partner with a
CLEC, they said.
''As SBC and Ameritech go into new markets, it's clear that they need to involve a third party -- a CLEC. That creates a
potential acquisition or wholesale opportunity for the CLECs,'' Henry said.
Intermedia Communications Inc. (ICIX - news), ITC DeltaCom Inc. (ITCD - news), Hyperion Telecommunications Inc.
(HYPT - news), ICG Communications Inc. (ICGX - news) and McLeodUSA Inc. (MCLD - news) are among the more
attractive partner or takeover targets.
''Intermedia is far and away the most attractive candidate. It has the geographic fit, great skill sets and enchanced data and
Internet prospects,'' Henry said.
Intermedia operates in 21 of the 30 markets SBC and Ameritech plan to enter, but has little overlap in the Baby Bells' core
regions, Henry said.
Comfort Tuesday upgraded Intermedia's stock to strong buy from outperform, citing its partnership potential with SBC as one
reason. Intermedia hit an intraday high of $77, but settled at $75.75, up $1.75, on Nasdaq.
''I'm increasingly optimistic about the benefits of this merger on local competition,'' Dan Miller, chairman of the Illinois
Commerce Commission said. Miller said he was expressing his personal opinion, not the official view of the regulatory board.
''Having big and powerful companies like SBC and Ameritech going into new markets creates competition in those new areas
-- competition that we haven't seen yet,'' Miller said.
While some consumer groups argue that competition and consumer choice would be reduced as SBC and Ameritech buy up or
partner with CLECs, others contend consolidation could actually benefit customers. The evolution of local market competition
could follow the same pattern of the long distance market, some analysts said.
When competition first began in the long distance market, thousands of small companies, mostly resellers, popped up. Although
there were several small companies from which to choose, many were so small and fragmented that they did were not strong
competitors to companies like AT&T Corp.
As the long-distance companies consolidated, stronger companies emerged, giving customers better choices and service,
analysts said. |
