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AT&T acquires BellSouth for $67 billion(Chicago Tribune (KRT) Via Thomson Dialog NewsEdge) CHICAGO _ It's almost as if Ma Bell has returned. The acquisition of BellSouth Corp. by a newly re-emergent AT&T raises the question of whatever happened to the idea that the old Bell System should be split apart to promote competition in the phone business. The deal for BellSouth, an all-stock transaction announced Sunday and valued at $67 billion, would pair two behemoths: AT&T, the largest telecom carrier, which was formed last year through a merger with SBC Communications, and BellSouth, the dominant phone company in the Southeast. It would also mean a big change for Cingular, the nation's largest wireless carrier, which has been operated as a partnership by AT&T and BellSouth. Cingular, like all of BellSouth's operations, will be rebranded as AT&T. With AT&T becoming the country's largest wired and wireless telecom company through this deal, things would be remarkably similar to the way they were before 1984 when the Bell System split apart to settle an antitrust lawsuit by the Justice Department. In that break-up, AT&T became the dominant long distance company and seven "Baby Bells" were created as separate operations to provide local phone service. Now, presuming the BellSouth deal is finalized, only one of the Baby Bells would remain a semblance of its old self: Qwest, which was originally U.S. West, is still a regional carrier based in Denver. The other six have been absorbed into AT&T, or will be under this proposed acquisition, or are part of the other big player, Verizon. The proposed new AT&T would be huge, with more than 316,000 employees. It would be the leading traditional phone company serving more than half the nation's consumers, and the biggest wireless company and the carrier serving the most large business and government customers. Even so, it won't be the same as the old Bell System because it doesn't have the same monopoly power that Ma Bell had before the break-up. In fact, the telecommunications industry has never seen the scope of competition it must contend with today. With so many choices of providers, consumers sometimes can feel that they are in the driver's seat. "You've got competition from cable TV operators, from other wireless carriers and from Internet companies," said Ford Cavallari, senior vice-president for Advantis, a Boston-based consultancy. "Companies like Google are the new competition for telcos." Phone companies are merging with each other because their industry thrives on economies of scale, Cavallari said, and they'll continue to consolidate as long as regulators allow it. Consumer advocates, which oppose telephone industry consolidation, argue that competition is mostly cosmetic because in any given locale, most consumers who want Internet access have only two choices, their local cable company or phone company. "Two's not enough to provide true competition," said Mark Cooper, research director for the Consumer Federation of America. "These guys are getting ready to kill the Internet, that's where this unregulated duopoly is headed." (EDITORS: BEGIN OPTIONAL TRIM) Cooper said that Edward Whitacre Jr., AT&T chairman and the architect of the deal to buy BellSouth, has often stated he wants to charge extra to companies like Google that currently use his network to reach their customers. "Whitacre is adamant that he's going to pick and choose who uses his network and the hell with everybody else," Cooper said. The future of the Internet will be decided in Congress, Cooper said, where some bills would give carriers more control over Internet traffic and legislation backed by consumers would strive to keep the Internet free of such controls. (END OPTIONAL TRIM) Terry Barnich, a Chicago-based telecom consultant, said the break-up of the Bell system played an important role in opening telecommunications to competition and encouraging new technology such as the Internet and cellular phone service. "If we had continued to have a regulated monopoly, we wouldn't be traveling on this competitive highway we're on now," Barnich said. "Combining AT&T with BellSouth isn't going to mean a return of Ma Bell." The old Bell System used its monopoly to control the rollout of new technology, and probably would have greatly slowed development of the Internet and wireless phones had it remained intact, said Jeff Kagan, an Atlanta-based telecom analyst. Before the break-up, AT&T had projected about 1 million wireless phone customers in the United States by 2000, an estimate that was off by a factor of about 100. "AT&T actually exited the cell phone business in its early days and had to buy its way back into wireless later," said Kagan. "If it hadn't been broken apart, you'd never have gotten the creative juices of competition that pushed all this new technology we have today." Most analysts agree that the focus of the merger of BellSouth into AT&T is the Cingular wireless partnership established by SBC and BellSouth. As outlined in Sunday's announcement, the wireless phone operation will continue to be based in Atlanta with the Cingular brand gradually phased out and replaced by AT&T, which remains a powerful brand name. The deal for BellSouth requires regulatory approval. Barnich said it will be scrutinized closely but likely approved. In terms of a seeming return to the past, the companies involved are actually quite different. The AT&T that is buying BellSouth is not the same company of old. AT&T by last year had lost much of its revenue as the long-distance business atrophied. It was SBC, the powerhouse carrier, that bought AT&T, but then assumed the AT&T name for its iconic value. The deal is described as a stock transaction with BellSouth shareholders each getting 1.325 shares of AT&T stock. Based upon Friday's closing price of $27.99 for AT&T shares, that works out to $37.09 for each BellSouth share, or an 18 percent premium over its closing of $31.46. (EDITORS: STORY CAN END HERE) Besides the wireless aspects of the deal, the merger will also likely have implications for broadband service in BellSouth's territory. Under Whitacre, AT&T has aggressively been upgrading its copper phone network with optical fiber, with the goal of supplying video programming over its network beginning this year in some markets. The other major landline phone company, New York-based Verizon Communications Inc., has also been upgrading its networks with fiber and already offers video in some markets. BellSouth has been less aggressive in seeking to enter the video market to directly confront cable TV operators who are adding voice service to steal customers from phone companies. Ray Gifford, president of the Progress & Freedom Foundation, a free market think tank based in Washington, said bringing AT&T's broadband policies to BellSouth's customer base is a positive development. "This transaction appears inevitable and desirable for broadband consumers," Gifford said. "The only surprise is that it happened so quickly." ___ (c) 2006, Chicago Tribune. Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/ Distributed by Knight Ridder/Tribune Information Services. 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