Charlotte Business Journal March 31, 2006 by David Mildenberg-Staff Writer
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| Charlotte Business Journal - March 31, 2006 by David Mildenberg-Staff Writer
Merger puts BellSouth back in business? Having seen its share of the business telecommunications market decline for years, BellSouth Corp. thinks its merger with AT&T Inc. will make it a more formidable competitor in fighting for new customers. "We think we're highly competitive right now and getting more so," says Krista Tillman, president of BellSouth's North Carolina operations. AT&T announced its proposed $67 billion acquisition of Atlanta-based BellSouth in early March. The Federal Communications Commission is expected to take up to a year to review the deal, although industry experts predict little opposition. Both Tillman and AT&T spokesman Aaron Bedy suggest the merger will enable the combined company to offer more services for large Southeastern companies that prefer national suppliers. BellSouth, now the dominant player in its nine-state region, will become part of the nation's largest telecom corporation. "We sell to every Fortune 500 company," Bedy says. "BellSouth hasn't been able to offer solutions to some national and global companies because they haven't had a national backbone." Tillman notes Charlotte's big banks and other giant firms "more and more need a solution that is national, and they are looking for a single provider, as opposed to working with many regional companies." The merger also will consolidate Cingular Wireless into the combined company, which Tillman predicts will be a major advantage. San Antonio-based AT&T owns 60% of Cingular, while BellSouth owns the balance. "Any time you pull away some corporate bureaucracy it allows us to serve our customers more quickly," she says. Some smaller rivals are confident they'll continue to pick away at BellSouth's market share by offering innovations and more hands-on customer service. Atlanta-based BellSouth had a nearly 100% share of its franchise areas in 1984, when a federal judge ordered AT&T to be broken up. Since then, the company has focused on internal growth. Rival Bell operator SBC played Pacman, acquiring California-based Pacific Telesis, Illinois-based Ameritech and, last year, New York-based AT&T. (SBC changed its name to AT&T after that merger.) Various government and private surveys suggest BellSouth's market share of business customers is less than 60% in competitive areas such as Charlotte. The balance is split among more than a dozen, much smaller competitive local exchange carriers. Among residential consumers, BellSouth's market share is still believed to top 70%, although rivals Time Warner Cable, Vonage and others are making inroads. Brandon Lowery, a regional manager for privately held WynnCom Inc., predicts BellSouth's business market share will continue shrinking. Lexington, N.C.-based WynnCom, which sells telecommunications equipment and service, has grown from about 15 to 20 business customers locally to nearly 300 over the past five years. More than 90% of those companies have selected Charlotte-based US LEC Corp. or other rivals over BellSouth, Lowery says. "If I can offer you the same product with better service and at a lower cost, why would you buy from BellSouth," he says. "Every now and then we have customers that return to BellSouth, but it is very rare." Tillman acknowledges business and residential markets are increasingly competitive, but she says BellSouth's customer-service advantage and investment in new technologies gives it a heads up. "We are absolutely committed to excellent customer service." BellSouth doesn't break out what percentage of its $20 billion in annual revenue comes from business customers. Telecom industry analyst Rich Tehrani says business rivals may take some advantage of the merger, but it's unclear if any have sufficient financial clout to pose a long-term challenge. "We need a vibrant CLEC market to provide competition and innovation, but the model has largely failed to this point in our country," he says. He notes many countries sport faster broadband systems than the United States, which he says is the result of giants such as AT&T, BellSouth and Verizon focusing on mergers instead of innovation. "Without that CLEC vibrant market, we'll always be behind other countries and we'll continue to lag in innovation," Tehrani says. The increased scope and political clout of AT&T and BellSouth will inevitably make it a tougher rival for business competitors, says Pat Eudy, president of Charlotte-based American Broadband Inc., which owns several small rural telephone companies. He considers the merger "horrible for consumers" and says former monopoly companies have rarely produced significant innovations. "SBC has proven to be fiercely anticompetitive and has been the most aggressive of all of its peers in how it deals with its competitors," says Eudy, whose firm buys services from both BellSouth and AT&T. "As tough as BellSouth can be, SBC is the worst of all." The combined lobbying clout of AT&T and BellSouth at both federal and state levels can't be underestimated, Tehrani agrees. "The bottom line is that CLECs will survive because they offer different services, but prices will be higher to businesses, and we will see less innovations," says Earl Comstock, president of Comptel, a CLEC trade group. 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