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SBC Chief Says AT&T Deal Preserves American Icon

Posted on: Tuesday, 1 February 2005, 18:00 CST

NEW YORK -- Ed Whitacre, the chairman and CEO of SBC Communications, is a big man with a big reputation as one tough son- of-a-gun at the negotiating table.

But talking to reporters Sunday about the AT&T deal, the SBC chief was practically misty-eyed.

"We are preserving an American icon," said Whitacre, who was on a conference call discussing SBC's decision to buy AT&T for $16 billion in stock and cash. He extended a warm greeting to the employees, stockholders and customers of the world's most famous phone company.

"Welcome home, and welcome to the future," Whitacre said, his Texas twang softening a bit at the mention of the iconic AT&T name.

The proposed merger, which needs approval from regulators, marks the end of a 130-year-old era for one of the world's most recognized brands. At the same time, it stands to create a new Ma Bell for the 21st century -- one whose heart and soul are embodied by Texas- based SBC.

The transaction is hardly without risk. SBC will have to convince regulators that the U.S. telecom market has become competitive enough to allow it to partially reconstitute the former phone monopoly known as Ma Bell. Regulators, though, are expected to approve the deal.

SBC will also have to move swiftly to integrate a shrunken and money-losing AT&T into its operations. Lisa Pierce, an analyst at Forrester, thinks that could take at least three to five years. It will probably cost "billions of dollars" over time, she says.

The San Antonio-based Bell company is aware that AT&T's core profit engine -- long-distance -- is sputtering. But SBC is betting $16 billion that, over the long haul, it can revive the brand.

The companies project they will save $15 billion by eliminating overlapping operations and personnel. Provided that the savings materialize as expected, that could offset most of the final purchase price, they say.

Eric Paulak, a vice president at Gartner, is skeptical.

"Name any merger where anybody ever realized the synergies promised," he says. "No, I don't believe it."

As for the regulatory environment, SBC and AT&T say they aren't worried. Part of their confidence is owed, at least in part, to the Department of Justice's own words.

In an August speech in Aspen, Colo., the department's top trustbuster, R. Hewitt Pate, noted that the telecom market had changed dramatically since the Bell System was broken up in 1984. In considering any proposed telecom merger, Pate indicated, the department would take into account the impact of technology, including the effects of wireless communications and Internet telephony, on the competitive landscape.

Pate's comments were at least a tacit acknowledgement that the telecom world has changed since the Bell System was broken up.

The SBC-AT&T deal, which stands to rewrite the rules of the competitive game, is a reminder of how much the telecom game has evolved in the past two decades.

Changes, changes

When Ma Bell was carved up in 1984, AT&T was the undisputed monarch of long-distance, with nearly 100 percent of the market. As part of the divestiture, the Bell operating companies were grouped into seven regional units and spun off as independent companies.

At the time, some worried about whether they would be able to make it financially. Local phone rates were cheap - less than $10 a month. Long-distance, by comparison, could cost several dollars a minute or more.

Then came the 1990s. The Bells, determined to take a bite out of the $100 billion long-distance market, started merging in an effort to break down the geographic boundaries of their court-defined worlds.

AT&T, meantime, was starting to stumble. Its long-distance business was starting to erode in the face of relentless price wars.

By 2000, AT&T was desperate for a new business strategy, even as the super-sized Bells were reveling in their status as communications powers.

Talking about the SBC-AT&T deal yesterday, Dave Dorman, chairman and CEO of AT&T, couldn't help but think about that journey.

"It is ironic that a Baby Bell is acquiring its former parent," he noted. Still, he thinks the merger, which is bound to go down in history as AT&T's final chapter, "is the right move at the right time" for the American icon.

Analysts generally agree.

Forrester's Pierce likes the deal in part because it practically guarantees AT&T a future. Given AT&T's legacy, as well as its contributions to the world, she thinks that's no small benefit.

"I used to work for AT&T," Pierce says. "It's hard to watch your alma mater die."

SBC stands to inherit AT&T's storied sales force, as well as its lucrative "enterprise" business that is dominated by big corporate accounts. Pierce notes SBC will also get AT&T's coveted global network, which passes through more than 50 countries and 850 major cities worldwide.

And AT&T?

"AT&T gets to stay alive," she says.

Benefits for both

Jim Andrew, a consultant with Adventis in Boston, also thinks the deal offers rich rewards for both sides. "It's a hell of a good deal" for both companies, he says.

SBC and AT&T surely think so.

"We are seizing the moment," Dorman told USA TODAY.

He credits Whitacre for being willing to pull the trigger on the deal, which stands to transform SBC, already the USA's No. 2 local phone company, into a true global power.

By the time the deal closes, SBC will be a bit like the British Empire: The sun will never set on its collection of properties, which will circle the planet and cover seven continents, including the South Pole.

In combination with SBC's rich cache of assets, which include 52 million local phone lines in 13 states, as well as a majority stake in Cingular, the USA's No. 1 wireless carrier, Dorman thinks the merged company can't miss.

"We're going together like a hand in a glove," the AT&T chief says.

Whitacre, in an interview with USA TODAY, returned the compliment. The SBC chief says he has a soft spot for the fabled AT&T brand name.

Asked if he'd consider dropping the SBC name so that so that he could adopt the AT&T moniker, Whitacre doesn't hesitate.

"Absolutely," he says. "Of course I'd consider that. It's a great name, and an icon in American business."

Likewise, Whitacre says he'd also consider adopting AT&T's "T" trading symbol, which has been a fixture on the New York Stock Exchange for decades.

"We'd have to look at it more closely, but everything is open" to discussion, he says.

The deal came about like a lot of big deals -- because the two CEOs at the top happened to see eye-to-eye on the opportunity before them, as well as the timing.

The two men had been having on-again, off-again discussions since last summer. The talks ignited shortly after AT&T announced plans in July to stop marketing its long-distance services to the consumer market.

The announcement marked a major departure for AT&T, which was essentially turning its back on the very customers who had helped to turn it into a global icon.

Dorman stood his ground, explaining that AT&T could no longer afford to stay in the consumer business, which was being shredded by escalating price wars.

The two men talked again in the fall, but SBC had its hands tied because it was trying to close its $41 billion purchase of AT&T Wireless for Cingular, which is jointly controlled by SBC and BellSouth.

In early January, things accelerated. Jim Cicconi, AT&T's general counsel, happened to call SBC's general counsel, Jim Ellis, to discuss another item of business. By the end of the call, the two men had segued into a discussion about the possibility of a merger.

About two weeks ago, things began moving "like grease rolling downhill," Dorman recalls.

At one point, Whitacre, a plain-spoken sort, picked up the phone and asked Dorman: "What will it take?" to buy AT&T.

Dorman clearly admires Whitacre's swagger.

"It's the same kind of moxie that Theodore Vail had in building the Bell System," he says, referring to Bell's storied general manager in the early 1900s.

Clearly moved by the historic importance of the transaction, Dorman had the official portraits of Vail and Alexander Graham Bell, inventor of the telephone, moved into AT&T's boardroom for the final vote on the deal Sunday night.

"Those guys built this company," Dorman says, recounting the moment when the final board vote was taken to sell AT&T to SBC.

"This is a historic company, one of the most enduring and widely used by mankind, in terms of the telephone. I just wanted them there."

Source: Deseret News (Salt Lake City)

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