Everything you need to know about the AT&T/Cingular merger

AT&T wireless, and AT&T has been around since 1885. Beyond that, the names “SBC Communications” and “Bell South” among others. So who plays what roles here, and how did this whole thing come about? Let’s start with the original: American Telephone & Telegraph Company, which became simply AT&T Corporation in later years. Because there are so many incarnations of the name “AT&T” that will be used in this piece, the original company will be referred to from here on out by its popular nickname, “Ma Bell.” Ma Bell and the telecommunications industry Ma Bell was founded on March 3, 1885, and ran long distance lines from New York, reaching Chicago by 1892. They reached San Francisco by 1915. In the early 1900s, Ma Bell began buying local telephone companies. This was met with much resistance, as many feared a monopoly. To nip the issue in the bud, Ma Bell issued the Kingsbury Commitment of 1913. Under this provision, Ma Bell could continue to acquire local bell companies as long as it sold an equal number. This allowed them to pick up companies in more strategic geographical locations, while dumping less attractive or useless companies. Also under the Kingsbury Commitment, Ma Bell agreed to provide access to their network to local bells. While it was nice for local companies at the time, the long-reaching effect was that it left little reason for those companies to build their own long distance networks to compete with Ma Bell. In essence, Ma Bell gained more power with this provision, rather than leveling the playing field, which was the intended result. Ma Bell’s power was expanded in 1918, when the US government nationalized the telecommunications industry. Even though the experiment ended a year later, the idea that telephoning was a “natural monopoly” prevailed. That is, it was widely believed that one company could better serve the industry’s purpose than a competition among many. “One Policy, One System, Universal Service,” was the motto of then AT&T president Theodore Vail. We’re going to fast forward to 1982, but don’t think Ma Bell was dormant in between 1918 and ’82. They did some great things, like commissioning Bell Labs to create the transistor and the C programming language, among many other innovations. They also pulled their share of shady moves, like forcing customers to rent, rather than buy, phones and phone equipment. Lease fees paid for the phones many times over, meaning Ma Bell made out like bandits. An infamous antitrust suit against Ma Bell was settled in 1982, and it caused a big stir. They agreed to divest their local bells, which ended their lease program (thus losing them profits). In exchange, they were allowed to enter the computer industry. This is where things start to get a little confusing. Here are the key points, for our purposes:

  • The computer business was dubbed AT&T Computer Systems
  • Western Electric, the manufacturer of Ma Bell’s leased phones, closed all of their plants in the US, though the company was continued under the moniker AT&T Technologies.
  • The local companies Ma Bell was forced to divest were known as Baby Bells. BellSouth was one of them.
  • AT&T Corporation (which we had been referring to as Ma Bell) became AT&T Communications. We’re still going to call them Ma Bell.
The next major moment for Ma Bell came in 1994, when they purchased McCaw Communications, which at the time was the nation’s largest cellular carrier. At the time they were the nation’s largest cellular service provider, but were eventually superseded by Verizon by 2000. Nonetheless, on July 9, 2001, AT&T Wireless Corp. went public (in the then largest IPO in history). So if you had an AT&T cell phone at that point, your carrier was AT&T Wireless Corp. Cingular’s story In 2001, SBC Communications and BellSouth (yes, the Baby Bell) created a joint venture called Cingular, which quickly became the nation’s second largest cellular carrier, behind Verizon. That wouldn’t last for long. In 2004, Cingular bought AT&T Wireless for $41 billion. This was the result of a bidding war with Vodaphone, which owns a stake in Verizon. If Vodaphone had won that bid, they would have sold their stake in Verizon Wireless to Verizon Communications, further strengthening the company. Instead, Cingular jumped in and leapfrogged Verizon at the top. AT&T Wireless then changed its name to New Cingular Wireless Services, Inc. Ma Bell lives — but not for long Remember, Ma Bell (AT&T Corporation) still existed at this point. However, less than four months after the Cingular acquisition of AT&T Wireless, Cingular’s parent company, SBC Communications, announced that it would purchase Ma Bell. It took nearly nine months to finalize the deal, but it was completed on November 18, 2005. SBC, recognizing the value of AT&T’s brand, dubbed the new company AT&T, Inc. (ah, so now you see why we were calling it “Ma Bell” before). Funny how things work: AT&T once again owned AT&T Wireless (now Cingular). But only a 60 percent share; the other 40 percent was BellSouth’s portion of the joint venture. This became an issue when AT&T announced that it would be rebranding Cingular Wireless under the AT&T moniker. Bell South wasn’t too keen to the idea, so they were told that the AT&T brand would be for “bundle” products — that is, it would be called AT&T when customers bought multiple services, like broadband Internet. However, that was just a temporary fix. In March of 2006, AT&T announced that it would acquire BellSouth. The deal was finalized on December 29, 2006. Two weeks later, AT&T announced that Cingular would be completely rebranded as AT&T — hence the “Cingular is now the new AT&T” campaign that began in January 2007. Let’s clear this up All the prominent players we talked about — SBC Communications, Cingular, Bell South, and Ma Bell — are now AT&T, Inc. They provide a number of services, but for our purposes, we’re going to focus on the wireless service — is now simply AT&T. Now, onto the pressing question… What does this mean for you, the consumer? Let’s open with Gene Kimmelman, the oft-quoted vice president for federal and international affairs for Consumers Union: “Congress and federal regulators need to look carefully at the lifeless “competition” their flawed policies have created and reject this merger. The government has been deceived before by promises that somehow more concentration would produce more choices and competition, when the result has been just the opposite. It shouldn’t be fooled again.” Our problem with that statement: we don’t think the government is being “deceived,” per se. Rather, they look the other way when they see something in it for them. So while Mr. Kimmelman makes a valid overall point, it went essentially unheard. Mark Cooper, director of consumer research for Consumer Federation of America, dropped his two cents: “Telecommunications has now gone from a regulated monopoly to an unregulated duopoly with just two major players. Consumers know that is not enough competition to lower their prices and drive innovation, especially when the two companies providing Internet access have a long history of anti-competitive, anti-consumer behavior.” So it’s assumed that the lessened competition will cause a spike in rates because, well, what are you going to do about it? They have the power. Isn’t that what antitrust laws were set out to avoid? Then again, you could always switch to T-Mobile or Sprint Nextel. What about the MVNOs? This is a weighty topic, since Cingular is “the biggest provider of network services to MVNOs.” Now, since Cingular is a wholly owned entity and no longer a joint venture, AT&T will be able to do what it pleases with the MVNOs using its network. Does this mean MVNOs are in danger? Possibly. Surely, there will be studies conducted as to the usefulness of those MVNOs, and if they are deemed too competitive, they could be axed…and no one could really do much about it. Is that likely? No, not really. After all, there is a market for prepaid services, and many MVNOs provide better service than the main company’s prepaid plans (for instance, Amp’d, an MVNO under Verizon, provides features and plans not offered by Verizon’s own prepaid plan). And with all of the MVNOs under other wireless umbrellas, it seems unlikely that AT&T would abolish theirs; if people didn’t like the prepaid service they did offer, they could easily just go to another MVNO. And who wants to send business to the competition? So it seems that the biggest fallout of this merger will be pricing, although that’s not a certainty. Their prices are still on par with Verizon, their biggest competitor. However, price increases usually occur over a longer period of time. If these increases do occur, they’ll be passed down to AT&T’s MVNOs as well (an airtime rate will certainly be applied to MVNOs). Since Cingular is officially AT&T now, we can expect to see some changes over the next few months.]]>

Posted in