SBC, AT&T make big promises
The newly combined SBC-AT&T will be greater than the sum of its parts and will accelerate deployment of advanced IP-based services to U.S. businesses and consumers, executives from both companies promised this morning.
In fact, the merged entity should become a prototype of future service providers by marrying local broadband access with global reach for content and services, said AT&T CEO David Dorman, who will become president of the new operation.
In separate analyst and press conferences following the announcement that SBC would acquire AT&T for roughly $16 billion, the management team said the new entity will capitalize on complementary strengths and move aggressively to eliminate duplication, creating a company with unmatched network scope, the industry's lowest cost structure and the automated systems to quickly deliver IP services at the network's edge.
"The cost synergies as we rationalize network assets are the greatest opportunities for synergies that I have seen," said SBC Chief Operating Officer Randall Stephenson. "They are straightforward and clear. We expect the net present value of synergies will exceed $15 billion dollars, net of integration costs."
Of that $15 billion, 85% comes from cost reductions, including the merger of AT&T's headquarters into SBC's, the combination of IT operations and the sales, customer support and network operations for enterprise customers, he said. SBC's IP services will be consolidated onto AT&T's IP backbone.
Under the merger deal, which still faces regulatory approval in the U.S. and abroad, AT&T shareholders will receive 0.77942 shares of SBC common stock for each common share of AT&T, and a special dividend of $1.30 per share from AT&T, for total compensation worth $19.71 per share. The merger is expected to close in 2006.
The combined company will boast a U.S. backbone network of 77,000 route miles with 750 points of presence and local facilities in 91 cities. In addition, it will include 52 million local access lines and 5.1 million DSL lines. Globally, SBC-AT&T will have network assets in 50 counties and 850 cities, along with 26 advanced data cities. Added to that is SBC's stake in Cingular Wireless.
More importantly, said Stephenson, the merged company "will combine AT&T's automated ordering system to create a single platform for all products" and quickly move to consolidate sales and support for business customers.
"We will have well-developed product sets in areas such as unified communications, VoIP and IP-VPN," he said.
Immediate "revenue synergies"--or cost cuts--include consolidation of AT&T's headquarters operation into SBC's, and of the two companies' sales, network operators and customer care for enterprise customers. The latter move is expected to save $1.6 billion alone.
SBC Chairman Edward Whitacre said the AT&T acquisition will enable his company to accelerate deployment of voice over IP and save millions in development by using AT&T's CallVantage technology. In turn, Dorman said, AT&T can leverage SBC's relationship with Yahoo! to reach millions of potential VoIP customers globally.
Most likely to feel the immediate negative impact of this deal are Wiltel and Sprint. Wiltel is SBC's current long-distance network partner, but SBC officials said that contract includes an "out" clause if SBC buys a long-distance player. AT&T had been in the process of creating a Mobile Virtual Network operator (MVNO) agreement with Sprint. Dorman hinted that Cingular is more likely to be AT&T's MVNO partner. "I'm not sure you'd still call it an MVNO," he said.
|Advanced nationwide network|
|Unmatched global reach|
Dense local access network
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