For Whom Ma Bell Trolls

Yes, the long-rumored linkup finally has commitments from both companies. Obtaining regulatory approval is another matter, of course. But if AT&T is allowed to bulk up and become the largest telecom operator in the country — not to mention sole owner of the largest wireless operator, Cingular, which it currently co-owns with BellSouth — you can bet its ramifications will impact more than one industry. That's because these days, business is all about the bundle.

Once upon a time, phone and cable companies had their own very separate, niche businesses. Things aren't so simple anymore. Now, everyone is vying to be a one-stop shop, as cable, telephone and Internet outfits all offer the same set of services to customers. In New York, for example, you can get high-speed Internet, cable and phone, as well as subscriptions to more than a couple of magazines from Time Warner. You can also get DSL, wireless and land-line phone service from Verizon Communications (VZ). Frankly, if you're not bundling telephone, wireless, Internet and television and peddling it to everyone, you're not keeping up with the competition. AT&T's proposed deal would put it in a stronger position to bundle to its heart's content — that is, once it fully integrates BellSouth and SBC Communications. You'll recall that it was only five months ago that SBC closed on its purchase of AT&T and assumed the venerable name.

Integration concerns aside, mega-deals routinely kick up concerns that consumers will suffer from a lack of competition, and rightfully so. But AT&T's proposed acquisition of BellSouth still leaves plenty of competition, according to Jeff Kagan, an independent telecom analyst based in Marietta, Ga. You can thank Comcast (CMCSA), Cablevision Systems (CVC), et al for that, as well as various Internet phone upstarts like eBay's (EBAY) Skype and Vonage, which is planning an initial public offering. As for the potential impact on prices, Kagan is nonplussed. He notes that offerings from phone companies still tend to be less expensive than cable offerings — ever compared prices between DSL and high-speed cable? — and bundled services tend to be better priced than those purchased a la carte, since consumers are less likely to switch if they're getting everything from one provider. "The bargains are going to come when you put [services] all under one roof," says Kagan.

Changes are also afoot under consumers' roofs — as in the fate of land lines. While the majority of consumers in the U.S. still use land-based phone lines, growth is essentially nonexistent. Wireless is where the industry's juice comes from. The nature of the land line is changing as younger consumers opt to use cellphones for the bulk of their telephonic communication. Robert Rosenberg, president of Insight Research, a telecom research firm based in Boonton, N.J., expects a "gradual, generational displacement" of land lines. This isn't to say they'll dry up and die, though. Telecom carriers aim to transform them into powerful pipes for data and video. That's why they're betting big on high-speed fiber cable lines to the home, which promise to knock the socks off cable operators' data and video offerings.

Fiber is still at least several years away from being a widespread reality, however. In the meantime, something called fixed mobile convergence is helping speed the displacement of land lines, explains Rosenberg. Basically, the technology allows users to receive any call — whether it's made to their land line or wireless number — on their mobile phones. Throw Wi-Fi into the mix, and the calling possibilities are even more expansive, as cellphone calls are routed (presumably more cheaply) through the Internet. It's little wonder AT&T wants undiluted control of Cingular.

Who could find themselves under this massive deal's cloud? Telecom equipment operators. The likes of Ericsson (ERICY), Lucent Technologies (LU), Nortel Networks (NT), Motorola (MOT) and Nokia (NOK) could face some pressure, as they sell their wares to fewer customers, says Pablo Perez-Fernandez, director of research at Sagio Investments, a Geneva-based investment manager. After all, when it comes to negotiating contracts, he says, "AT&T is going to have a lot of leverage." Indeed, BellSouth suppliers Redback Networks (RBAK) and Tellabs (TLAB) suffered double-digit declines on Monday.

Business customers could also see some tougher pricing, says Insight Research's Rosenberg. The price war, led in large part by MCI — the former WorldCom, which was acquired by Verizon last year — is now over, he says. After so much industry consolidation of late, Rosenberg expects to see prices firm for business customers. Having another six million business customers from BellSouth should no doubt help matters for AT&T.

That said, as one of the largest ever undertaken in American business, the deal will come with its share of complexities, not to mention opposition. But the head honchos at AT&T feel it's worth it. The bundle, it seems, is just that important.