With Monday’s long-expected announcement that Bell Atlantic Corp. and Nynex Corp. were forming a super-regional telephone company, questions about the fate of the three remaining original Baby Bells kept phone lines crackling.
The Bell Atlantic-Nynex merger, a $23 billion deal, would create the second-largest phone company in the United States, behind only AT&T Corp., eclipsing the $16.7 billion combination of SBC Communications Inc. and Pacific Telesis Group announced three weeks ago.
That leaves Chicago-based Ameritech Corp., BellSouth Corp. of Atlanta and U S West Inc. of Englewood, Colo., the last of the seven regional phone companies created when AT&T was broken up in 1984.
The question now is how long will it be before they, too, decide that bigger is better and link up via some multibillion merger?
And if that happens, what can their customers expect?
“The pressure is on,” said Rick Wargo, director of A.T. Kearney’s technology-search practice. “I am sure Ameritech is dealing with questions both externally and internally about what it should do.”
But Wargo and other telecommunications industry experts say neither the merger of Bell Atlantic and Nynex nor the SBC-Pacific Telesis linkup is likely to push Ameritech or its Bell siblings into the merger-mania mode anytime soon.
Ameritech has been “sticking to their knitting and everything I’ve seen suggests that they will continue to do that,” said Terry Barnich, former Illinois Commerce Commission chairman, now president of New Paradigm Resources Group, a Chicago communications consulting firm.
Ameritech “wants to continue to be the dominant carrier in the industrial Midwest,” Barnich said. “I don’t see them doing these big, grand and bold things.”
Neither, apparently, does Ameritech’s leadership.
“We don’t see any value creation for our shareholders in merging with other telecommunications companies,” said Patrick Campbell, Ameritech executive vice president for corporate strategy and business development. “There is no panic for us to find a partner.”
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For one thing, say industry analysts, there is no guarantee that getting bigger will make a company like Ameritech better. Bigger companies are more difficult to manage, and it takes more effort to keep them close to their customers.
And while consolidation may create giants at the top, it also creates opportunities for pesky niche players at the bottom.
“If there is a problem with quality, it leaves an opportunity for someone that is small and fast to move in,” Barnich said.
Then there is the question of synergy. About 40 percent of all corporate marriages fail–the parties driven apart by clashing corporate cultures, goals and egos, according to national merger and acquisition statistics.
“Ameritech can stand on its own,” said Andrew Barrett, who recently left the board of the Federal Communications Commission. “It has positioned itself to compete rather well.”
That’s why instead of looking for a merger with BellSouth or U S West, Ameritech will look for alliances that will allow it to expand Internet services, its home-security monitoring services and its software business, Campbell said.
Ameritech also plans this year to aggressively pursue the $8.5 billion long-distance market in its five-state territory, say analysts.
“Ultimately, the telecommunications industry will arrive at a place where there will be three to four major national players who will provide a breadth of service,” Wargo said. “The next five to 10 years will see a shakeout period as the industry consolidates.”
While that happens, consumers can expect falling prices, but rising confusion. Local phone customers are experiencing both, Wargo said.
So-called “loyalty programs” offered by long-distance carriers such as AT&T and MCI Communications Corp. which reward customers for using one service over another are an example.
“We were called the other night by Ameritech asking us to switch from AT&T for long-distance service within Illinois that is more than 15 miles from our house,” noted Wargo.
But as competition intensifies in the telecommunications industry, consumers can expect more of the same. Enactment of the telecommunications act has redefined the landscape, and it’s economics, not politics, that will determine who wins, Barnich said.
“Bigness is not a bad thing,” Barnich said. “People don’t care who their provider is; they just want good service. Within the next 12 to 18 months, I see possibly a merger or partnership between a Baby Bell and a long-distance carrier or a cable company or an electric company.”
The Bell Atlantic-Nynex merger shows one aspect of such deals: Fewer employees are needed. The companies said they will do away with 3,000 jobs out of the 133,000 they now have.
And those will be on top of the thousands of jobs cut as the two companies braced for an unregulated marketplace.