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AT&T announced in September 1995 its intention to break into three companies, with the reorganization planned to be complete by January 1, 1997. As we discussed in Chapter 6, the new companies will be AT&T Corp. (long distance, credit cards, cellular and PCS, and Internet access), Lucent (Bell Labs and equipment manufacturing) and NCR (computers and related services, ATMs, and electronic cash registers). AT&T Corp. likely will continue to be strong in every respect. Lucent will benefit greatly, as the RBOCs, IXCs, CAPs and others were not inclined to purchase equipment from their largest competitor. Lucents independence from AT&T will remove that barrier. NCR likely will benefit, as well, as AT&T proved on several occasions that it could not be successful in the computer business; the tattered remnants of NCR will have a much better chance for renewed success as an independent entity.
SBC (Southwestern Bell) and Pacific Telesis (Pacific Bell and Nevada Bell) were the first to announce their intent to merge, subject to approvals of stockholders and regulators. SBC bid an incredible $16.7 billion for PacTel, reportedly after several other potential bidders (GTE, NYNEX, and BellSouth) turned away from the opportunity. Southwestern Bell has been strong since divestiture and has been gaining strength ever since, largely by sticking to its core business. PacTel, on the other hand, has been weakened by the loss of AirTouch, as well as by the notoriously difficult regulatory environment in California. (AirTouch, by the way, has since linked with US West Cellular, yielding a cellular offering that blankets the West Coast.)
PacTel clearly will benefit from the financial strength of SBC, although the California PUC undoubtedly will offer SBC untold exciting challenges. The combined size of the companies will make the new organization a real force in the market. SBCs 1995 revenues were $12.7 billion and PacTels $9.0 billion; their subscriber base will total 25 million, including 7 of the top 10 largest metropolitan markets in the U.S. and 16 of the top 50. In addition to increased aggregate strength in their core businesses, they will leverage their individual strengths in the highly competitive long distance market, as well as the emerging PCS business. Pacific Bell Mobile Services successfully bid for the PCS license in the Los Angeles/San Diego market, which has enormous potential. Southwestern Bell Mobile Services gained three licenses, including Tulsa. On the other hand, SBC does not have a reputation as being particularly aggressive in terms of data services (e.g., ISDN and Frame Relay). As the merger is effectively a SBC takeover of PacTel, the latter companys workforce likely will be impacted to the greater extent [16-27] through [16-30].
Immediately after The Act was signed into law, SBC filed on February 15, 1996 its intention to offer long distance service in 16 states including Connecticut, Illinois, Massachusetts, New York, Virginia, and Washington, D.C. The service initially will be marketed to the companys cellular customers under the Cellular One brand. While SBC, for the time being, will be only a reseller of long distance service [16-31], it likely will build its own facilities-based network over time.
Bell Atlantic announced in April 1996 that it will acquire NYNEX for $22.1 billion in stock, ranking as the second largest merger in U.S. history behind the RJR Nabisco union with Kohlberg Kravis Roberts & Co. in 1989. The new Bell Atlantic will boast combined assets of $51 billion, making it the second largest phone company, behind AT&T (which is splitting up, of course). Combined revenues will be $26.9 billion from a customer base of 37 million in a service territory that stretches from Maine to North Carolina.
Significantly, 45% of all U.S. long distance calls either originate or terminate in that area, thereby positioning the new company for huge long distance profits. Notably, Bell Atlantic became the first RBOC to apply for permission to offer long distance service under the terms of The Act. On February 13, 1996, Bell Atlantic filed to provide long distance service in Texas and four other states, signaling its intentions to its former colleagues, the other RBOCs [16-29], [16-32] [16-33] and [16-34].
The overall future of the FCC has been the subject of great debate for the past several years. In fact, the agency has seen its budget cut by about 10% in 1996, despite the tremendous increase in workload brought about by The Act. There continue to be discussions in the halls of Congress about paring the agency down to an administrative body of about 250 people compared to the current number of approximately 2,500 [16-35] and [16-36].
According to Victor Toth, that downsized (theres that word again) agency would be responsible for overseeing the allocation, auctioning and licensing of radio spectrum; and ensuring that high-cost areas are served. Additional responsibilities would include overseeing industry interconnection and competition, and serving as a repository for standards information [16-35]. Someone once said that a smart man leans from his own mistakes; a wise man learns from the mistakes of others. Let us not fail in our quest for wisdom; rather, let us learn from the experiences of our friends in New Zealand.
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