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SBC/AT&T: Possible Winners & Losers

Light Reading
News Analysis
Light Reading
1/28/2005
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There's been a proposal, but no answer yet. Still, a possible marriage of SBC Communications Inc. (NYSE: SBC) and AT&T Corp. (NYSE: T) may have a $2 billion effect on the telecom equipment industry in just one year.

Yesterday (Thursday) Merrill Lynch & Co. Inc. analysts Tal Liani and Vivek Arya offered their take on the possible winners and losers if a merger takes place. If the widely rumored deal were to eventuate, it could depress the total U.S. wireline capital spending (capex) amount by 10 percent, or $2 billion, in 2005, the analysts write in a research note.

Merrill Lynch expects SBC and AT&T to spend a combined $7 billion in wireline capex in 2005. And Verizon Communications Inc. may be moved to decrease spending as competitive pressure recedes.

As with all deals of this scope, there will be winners and losers. Liani and Arya believe Adtran Inc. (Nasdaq: ADTN) and Sonus Networks Inc. (Nasdaq: SONS) could benefit from the merger, while Lucent Technologies Inc. (NYSE: LU), Nortel Networks Ltd. (NYSE/Toronto: NT), and Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) may suffer. Here’s how:

Deployment of SBC’s fiber initiative, Project Lightspeed, could be pulled back as the company expends resources to integrate the AT&T network, the brief states. If so, DSL equipment vendor Adtran might find more opportunities in advance of SBC's eventual move to fiber. Alcatel (NYSE: ALA; Paris: CGEP:PA) might also lose some fiber equipment sales but could recoup with increased DSL gear sales.

A combined SBC and AT&T, the analysts say, would work to eliminate redundant spending on overlapping parts of their networks, specifically the two companies’ enterprise data services such as T1, Frame Relay, ATM, Ethernet, and private-line services. However, less entrenched players like Avici “could get shut out,” they write.

But over time an SBC/AT&T combo could provide a big boost to the rollout of intercity Ethernet virtual private LAN services by significantly increasing the number of customer endpoints touched by a single carrier, according to Heavy Reading analyst Stan Hubbard.

“As AT&T’s Rich Klapman and others have noted, there are about 90,000 to 100,000 major business locations that could use high-speed Ethernet services, but no operator has more than 10 percent of these key locations on-net,” Hubbard says. “This would definitely change that situation.” For long-distance services, Liani and Arya believe that SBC would combine the two legacy voice networks in order to “lower the cost of maintenance services from vendors.” This, the two say, would hurt incumbent suppliers Lucent and Nortel.

Spending might increase, however, on next-generation services such as VOIP. Arya and Liani say Sonus Networks might benefit if SBC takes an interest in ramping development on AT&T’s CallVantage, currently the second-largest VOIP service behind Vonage.

A likely theme in the months following an acquisition would be SBC’s firm hold on the reins when it comes to capex spending. “I would be concerned if I were a significant supplier to AT&T,” says Heavy Reading’s Hubbard. “In the past, such as in the case of the failed MCI/Sprint merger, we have seen a substantial pullback in capital spending on the part of the company being acquired."

Following are the equipment suppliers for key components in the carriers’ networks:

    SBC

    • MSPP: Fujitsu
    • Metro WDM: Nortel
    • Optical Switch: None
    • Core Router: Cisco
    • Edge Router: Cisco
    • Multiservice Switch: Ciena, Alcatel, Lucent, Cisco
    • Ethernet Switch: Cisco


    AT&T

    • MSPP: Cisco, Lucent, Nortel
    • Metro WDM: Nortel, Ciena
    • LH DWDM: Siemens, Lucent, NEC
    • Core Optical Switch: Ciena
    • Core Router: Cisco, Avici
    • Multiservice Switch: Cisco, Lucent
In trading Thursday, Sonus finished up 37 cents at $6.19; Avici fell 50 cents on news of a poor fourth quarter; and Adtran gained 16 cents to $17.96. Lucent stock closed up three cents at $3.30, while Nortel closed off two cents at $3.81.

— Mark Sullivan, Reporter, Light Reading
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OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 3:28:24 AM
re: SBC/AT&T: Possible Winners & Losers
I too was stopped by this statement.

But upon further review, it is briliant from their point of view; Wireline is already down and left to us old folks. (They must be reading your comments)

This enables SBC to spread it's VOIP market coverage.
Acquire that VOIP (gurus, products and Market) wisdom/experience that has been claimed they lacked. This also allows them to slow roll VoIP.
It is also an insurance policy.

OldPOTS
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/5/2012 | 3:28:24 AM
re: SBC/AT&T: Possible Winners & Losers
Spending might increase, however, on next-generation services such as VOIP. Arya and Liani say Sonus Networks might benefit if SBC takes an interest in ramping development on AT&TGÇÖs CallVantage, currently the second-largest VOIP service behind Vonage.

I don't understand this reasoning. AT&T needed to get back into the local loop. With this merger aren't they back in? Isn't CallVantage just a redundant service to SBC's wireline POTS? What will this merger do to the AT&T and Intel WIMAX alliance?
DZED
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DZED,
User Rank: Light Beer
12/5/2012 | 3:28:23 AM
re: SBC/AT&T: Possible Winners & Losers
Excuse me for being dumb, but isn't VOIP a bubble which is about to burst?
Isn't VOIP effectively a way of getting something for nothing? ie Unlimited long haul telephone calls for the price of your local internet connection?
When the telcos realise their revenue is drying up won't they do something about it?
aswath
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aswath,
User Rank: Light Beer
12/5/2012 | 3:28:22 AM
re: SBC/AT&T: Possible Winners & Losers
Excuse me for being dumb, but isn't VOIP a bubble which is about to burst? Looks like a rhetorical question to me. So there is no need to answer.

Isn't VOIP effectively a way of getting something for nothing? ie Unlimited long haul telephone calls for the price of your local internet connection? It is if you also consider web browsing to be a way of getting something for nothing. The problem comes about only when VoIP tries to connect to PSTN. If you restrict yourself to communication within IP, then you will realize the many benefits of VoIP. (email never pretended to supplant or tried to connect to the postal system.)

When the telcos realise their revenue is drying up won't they do something about it? As long as ISPs allow web browsing where the web page streams sound, VoIP will not be restricted. VoIP is nothing more than two independent flows between two end points that are simultaneously a web server for one flow and a client for the other. Skype has demonstrated that this can be done. ISPs can restrict this VoIP only if they restrict web experience as well.
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/5/2012 | 3:28:21 AM
re: SBC/AT&T: Possible Winners & Losers
When the telcos realise their [voice] revenue is drying up won't they do something about it?

They have been doing something about it. For years they have been transitioning to wireless (cellular).

It's a bit more of a challenge on the wireline side and the transition there takes more time. Privatizing the rate payer funded access networks is a beginning and strategic move. This private control allows them to roll up and consolidate the independent ISP and CLEC businesses (amongst other things.)

Isn't VOIP effectively a way of getting something for nothing?

VoIP looks similar to the Strowger switch to me. It's a promising piece of technology that gives the possibility of customer choice, bypassing the Bells, and creating opportunities for independents. But, unfortunately, the direction things are headed isn't so promising for today's independent VoIP providers.

More on Strowger can be found at:

http://en.wikipedia.org/wiki/S...
jim_smith
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jim_smith,
User Rank: Light Beer
12/5/2012 | 3:28:19 AM
re: SBC/AT&T: Possible Winners & Losers
SBC is now a serious contender in the Fortune 500 IP services market.

Also, SBC finally might be able to to put some revenue generating traffic on that freaking nationwide IP backbone that they built a couple of years ago.

I feel sad for the AT&T senior level managers. Ed is known to clean house pretty fast.
jim_smith
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jim_smith,
User Rank: Light Beer
12/5/2012 | 3:28:18 AM
re: SBC/AT&T: Possible Winners & Losers
I feel sad for the AT&T senior level managers. Ed is known to clean house pretty fast.

Actually, I don't feel sad for them. Die suckers die!!!
rjs
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rjs,
User Rank: Light Beer
12/5/2012 | 3:28:18 AM
re: SBC/AT&T: Possible Winners & Losers
DZED, what do you mean by something for
nothing??

People who have DSL or Cable have paid for the
pipe. Period.

What you mean to say is that the RBOC cannot
keep charging for voice the way they feel they
are entitled to. Tough %$#$


-rjs
aswath
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aswath,
User Rank: Light Beer
12/5/2012 | 3:28:18 AM
re: SBC/AT&T: Possible Winners & Losers
What you mean to say is that the RBOC cannot
keep charging for voice the way they feel they
are entitled to.


I thought they are "entitled to" it as per FCC. So shouldn't we be lobbying there?
jim_smith
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jim_smith,
User Rank: Light Beer
12/5/2012 | 3:28:17 AM
re: SBC/AT&T: Possible Winners & Losers
fg> Well, maybe, but I wouldn't hold my breath.

You woudn't hold your breath for what? AT&T has all the lines to businesses and now SBC owns them.

fg> Somehow purging managers who have had 20 years in a competitive industry will turn a monopolist into a fierce competitor?

What "competitive industry" are you talking about? Long distance? AT&T has already been chased out of that business. Besides, most of the people (managers or otherwise) who have been around for 20 years in telecom are pretty useless. So getting rid of them can only be good.

But, coming back to the original question, what "competitive industry" are you talking about? When one company (AT&T) has copper/fiber to almost all of the Fortune 500 (or is it 1000?) companies, it's not called a "competitive industry."

I have no love for SBC or AT&T. Are you with me?

fg> The only way anybody wins at this game is when the entire market is divided into a duopoly, SBC vs. VZ, with all LEC and ISP competitors squashed, and they start raising prices and cutting service the way a competitive market wouldn't tolerate.

I thought this was a done deal. Its not?

fg> In that case those two companies' senior managers win, though everybody else, including what's left of the US economy, gets trashed.

Telecom trashing the US economy? What are you talking about? Think social security and medicare. All those 20 year telecom experience old retired parasites are the ones that are going to bring down the economy. And the debt-ridden-to-the-max 800K silicon valley shack owners are of no help either.
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