Merger may push Verizon on upgrades
While AT&T Inc.'s $67.5 billion acquisition of BellSouth Corp. has no immediate impact on consumers in the Northeast, the consolidation is likely to spur a new sense of urgency in the ongoing efforts of its major competitor, Verizon Communications Inc., to invest
AT&T to cut up to 10,000 jobs. E5 heavily in new technologies such as fiber-optic lines that can deliver video and next-generation telephone and Internet services.
The deal, which must be reviewed by federal regulators, also threatens Verizon in wireless services. The number one wireless provider, Cingular, is a joint venture of AT&T and BellSouth, and bringing its leadership under one roof allows AT&T to compete more aggressively with Verizon, which can bundle wireless, landline, Internet, and video services.
While it won't directly affect costs or service for Verizon customers, the merger could still wind up hitting wallets. Telephone and Internet customers have enjoyed years of declining rates due to competition, but ''some of these big mergers could help keep the level of decline in prices from going that much further that much faster," said Robin Diedrich, senior communications and media analyst at Edward Jones, a St. Louis investment firm.
The proposed acquisition underscores how dramatically the telecom industry has been changed by fierce competition from cable, wireless companies, and a host of other upstarts such as Vonage and Skype, both Internet-based calling services.
Verizon and Cingular compete fiercely for mobile-phone customers, which has held down costs for subscribers. Margins on wireless voice packages are razor thin, forcing providers to count on revenue from text messaging and other services to make up the difference.
AT&T's acquisition would give it full control over Cingular, while Verizon is still sharing ownership of Verizon Wireless with Vodafone Group PLC, a British company.
That has led to speculation that Verizon will bid high for the remainder of its wireless company.
''The only thing they can really do to make an impact is to bite the bullet and pony up the cash for Verizon Wireless," said Maribel Lopez, an analyst for Forrester Research in Cambridge.
That may be easier said than done because under its deal with Vodafone, the European company can force Verizon to buy out its shares under favorable conditions, but Verizon has no such power to compel Vodafone to sell. Analysts believe Vodafone isn't likely to resist a sale but it could be in a position to get top dollar for its stake.
Eric Rabe, a Verizon spokesman, said the company does not view a merged AT&T-BellSouth as a greater threat to its business and said the deal would not trigger heightened talks with Vodafone. Still, it may already be preparing itself to make a move: Verizon has paid down about half the debt on its balance sheet in recent years and said in January that it plans to shed its telephone directory business, which could yield between $15 billion and $20 billion in cash.
Whatever the outcome for Verizon, the AT&T deal highlights the changes in the telecommunications business since the government forced the old AT&T's split into seven separate companies in 1984. Then, the government argued, AT&T was anticompetitive because it had too much control over distribution of telephone services and manufacturing of telecommunications equipment.
In contrast, most analysts expect little regulatory resistance to the latest merger, which would create the largest US telecom company since the breakup.
''The market has fundamentally changed since the forced breakup of AT&T. Cable companies are now rightfully competitors and extraordinarily strong competitors," said Andrew Cole, president of Cambridge Strategic Management Group, a Boston consulting firm.
Keith Reed can be reached at reed@globe.com. 
