Mergers can help consumers, analysts say

AT&T Corp. gets taken over by its former Baby Bell spinoff, SBC Communications Inc. Gillette Co. is devoured by consumer products giant Procter & Gamble Co.

Both megadeal proposals come just weeks after an $80 billion consolidation wave rips through the cellphone industry, taking out three brand names.

This must be bad news for consumers, right? Not necessarily, say several economic specialists.

Many people reflexively conclude that fewer competitors means less choice, and higher prices, in the marketplace. But the most recent set of deals could actually wind up helping consumers by yielding financially stronger, more innovative companies. These companies could end up offering consumers better prices and services in markets where competition is being fanned overwhelmingly by technology, not by the number of companies in an industry sector.

''There can be advantages for consumers when these mergers happen," said Elizabeth G. Miller, a professor of marketing at Boston College's Carroll School of Management who specializes in consumer behavior.

Mark Zandi, chief economist with Economy.com, a suburban Philadelphia economic consulting firm, said, ''I can't see how these are going to lead to less competition in the marketplace."

Unlike a classic industry merger that eliminates an airline or a producer of steel, deals like yesterday's confirmed $16 billion takeover of AT&T by SBC, and Friday's $57 billion P&G bid for Gillette, involve companies that are closely related but compete in largely different markets.

Gillette and P&G both occupy big swaths of supermarket and pharmacy shelves, but mostly on different aisles. A giant in detergent, shampoo, and toothpaste, P&G offers virtually nothing that competes with Gillette's razor blades, batteries, and toothbrushes. Many analysts say two key reasons for them to team up are to improve their negotiating strength over profit-splitting with retail giants like Wal-Mart and to extend their $2 billion-plus in annual research and development across a wider range of products.

Today's AT&T gets roughly three-quarters of its revenues from big business and government customers, a market that SBC -- the second-biggest US local phone company -- has made little headway entering. While both can be called phone companies, the person-to-person communication services they offer face relentless competition from wireless, Internet, and cable television companies, and fixed-price monthly service bundles from companies in all of those industries have killed the concept of ''long-distance phone service" as a market AT&T controls.

BC's Miller said that in the case of the telecommunications and Gillette deals, ''It's not clear to me that these mergers are going to affect pricing. If you combine companies that have complementary strengths, that's going to be better for everybody involved, including consumers. They make themselves stronger, and they might be able to serve consumers' needs in a more effective way, providing one point of contact, bundled products, better service, and better networks."

Along the same lines, the $41 billion takeover of AT&T Wireless by Cingular in November created an industry behemoth eclipsing longstanding number-one Verizon Wireless.

But ''we haven't seen any marked increase in rates, and in a lot of markets, Cingular is getting rid of AT&T rates that were higher" as it standardizes Cingular rate plans, said analyst Chip Mahla of Econ One, a Los Angeles research firm that publishes a monthly survey of cellphone rates. Since December 2000, Econ One's index of the average Boston wireless bill has dropped to $45.43 from $57.23.

''I am very skeptical that you are going to see a great deal of change in the competitive landscape," Mahla said. ''I think these guys are still very aggressive in their pursuit of customers."

The official disclosure of the SBC-AT&T deal, which had been expected for days, alarmed some consumer advocates. Gene Kimmelman, senior director of Consumers Union, the publishers of Consumer Reports magazine, called the deal ''very troubling" and proof that ''the Telecommunications Act of 1996 has failed to produce the vigorous competition that was promised."

Mark Cooper, research director for the Consumer Federation of America, said in general, ''Consumers have only two choices -- a single cable company that dominates video and high-speed Internet or a regional Bell operating company that dominates local, long-distance and wireless telecommunications." SBC owns a 60 percent stake in Cingular, with BellSouth holding the minority stake.

However, the president of the biggest labor union at the two phone companies, Morton Bahr of the Communications Workers of America, said the deal ''could be good news for customers and employees as well as shareholders." Bahr said he is anxious about layoffs, especially for the 105,000 CWA members involved, but said, ''Such a merger creates a strong US competitor in the global telecom marketplace with the resources to substantially advance the rollout of high-speed broadband and other services and drive economic growth and job expansion."

Peter J. Howe can be reached at howe@globe.com.