BellSouth Risks Missing Turn at the Dance
01/31/05 - 03:19 PM EST
Scott Moritz
BellSouth's (BLS Quote - Cramer on BLS - Stock Picks) options are narrowing as the telecom-consolidation parade bypasses the Atlanta phone shop.
With SBC's (SBC Quote - Cramer on SBC - Stock Picks) announcement Monday to buy AT&T (T Quote - Cramer on T - Stock Picks) and Sprint's (FON Quote - Cramer on FON - Stock Picks) pending hookup with Nextel (NXTL Quote - Cramer on NXTL - Stock Picks), industry watchers are eager to hear BellSouth's plan. Having balked at a $24-a-share price tag for AT&T in October 2003, and now losing out to AT&T in a deal with SBC, BellSouth suddenly finds itself without two of its prime merger options. Assuming all big telcos must find partners, investors now see Sprint and MCI (MCIP Quote - Cramer on MCIP - Stock Picks) as the two most likely alternatives for BellSouth. But neither move would be a perfect fit for BellSouth, and almost any decision would need to address the Cingular joint venture with SBC. Still, it's hard to ignore the big consolidation trend afoot in phone land. "They are certainly under more pressure than ever to do something," says Telecom Pragmatics analyst Sam Greenholtz. "The SBC and AT&T deal leaves BellSouth the smallest of the group it wants to compete in." Counting debt, the $21 billion proposed deal between SBC and AT&T would allow the No. 2 telco to overtake Verizon (VZ Quote - Cramer on VZ - Stock Picks) in size and leave BellSouth a distant third-place contender. More importantly, SBC's acquisition of AT&T would give the big San Antonio-based Bell the largest position in business services and international voice and data trafficking sales. Not only are BellSouth and Verizon weak on this front, but SBC will use its broader offerings to swipe business from its rivals. Further insulting the jilted, SBC would be using AT&T to open the door with BellSouth's big business customers and then plying them with wireless offers from Cingular to help lure them away. "There was always a slight inefficiency to the arrangement originally, but with AT&T, that becomes a lot more of a problem," says independent telecom consultant Marty Hyman, referring to the prospects of BellSouth competing against its cell-phone service partner SBC.
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