Telco Takeover Raises Threat to Cable


BellSouth’s passive stance toward entry into the video business will probably change if the telephone company is acquired by AT&T.

As AT&T and Verizon have set bold plans to take on cable companies in both the video and the voice business, BellSouth has sat largely on the sidelines.

The company has been upgrading its telephone systems with fiber optics, mostly to increase the capacity of high-speed Internet services. But the Baby Bell has been far less aggressive and far more frugal than AT&T/SBC’s Project Lightspeed.

That means systems in BellSouth’s southern-state service area haven’t had to focus on defending against an attack in video, worrying instead about high-speed data and stealing the telco’s voice customers.

That will likely change. The video plans were a small point in the merger negotiations. Uniting the two telco’s cell phone partnership Cingular Wireless under a single owner and figuring out efficiencies in the core wireline business were more pivotal.

But an AT&T official called BellSouth’s fiber upgrade plans “very complimentary” to Lightspeed. BellSouth could be readily served by AT&T’s video headend and backbone. “They are doing 90% of what it takes to get Lightspeed infrastructure,” Stephenson says.

“AT&T is a more aggressive competitor than Bell South in terms of pricing, fiber deployment, and video strategy,” says Credit Suisse analyst Bryan Kraft. “We believe that BellSouth has been financially more conservative than AT&T and has been more interested in fostering rational price competition than in pursuing market share through aggressive pricing.” If the deal goes through “the roughly 20M homes in BellSouth’s footprint will be under the control of a more aggressive management regime as compared to today.”

Pali Capital media analyst Rich Greenfield says that Comcast, Time Warner and Charter would be most affected by a shift in BellSouth video strategy, since those cable operators have the biggest presence in Southeastern states.

AT&T’s takeover may help EchoStar. AT&T has an agreement to resell EchoStar’s Dish Network as part of a product bundle. BellSouth has a similar agreement, but with rival satellite service DirecTV. With AT&T executives running the show, EchoStar may well displace DirecTV.

TV stations and network could get slammed in the deal. AT&T executives predict they’ll reduce the combined companies’ advertising spending by $500 million, though did not specify how much of that would come from television.

Seante Commerce Committee Co-Chairman Daniel  Inouye, had his reservations about the deal: “The proposed recombination of two of the remaining four Baby Bells will call into question our commitment to promote competition in the communications marketplace and to preserve fair rules that guarantee nondiscriminatory access to new services," he said in a statement..

“Coming only 125 days after the FCC's approval of the SBC-AT&T merger, AT&T's proposal to purchase BellSouth would remove yet another potential competitor from the communications marketplace and calls into question whether the future of communications policy will be marked by strategies to promote vigorous competition or by further efforts to facilitate new mergers. "