ITXPO - AT&T's possible merger forces customers to prepare

LAKE BUENA VISTA, FLORIDA (10/22/2003) - AT&T Corp. customers say they are getting prepared in the event the telecommunications provider merges with another carrier -- a possibility that was front and center here at this week's Gartner Symposium ITxpo 2003.

One of the customers keeping an eye on that merger talk is Atlanta-based Internap Network Services Corp., which has a national overlay backbone for Internet services provided by AT&T and has tried to insulate itself by providing redundancy with eight additional backbones from other carriers.

"We did that because we didn't want all our eggs in one basket" with industry consolidation a possibility, said Jeff Hacker, national manager of alliance development at Internap.

The suitor mentioned most often for AT&T is BellSouth Corp., according to Jay Pultz, an analyst at Gartner Inc. in Stamford, Conn. He put the odds of an AT&T merger with another carrier at 40 percent during the next several years, based on several factors, including an expected consolidation in the telecommunications industry.

Neither AT&T nor BellSouth would comment on the possibility. "That AT&T/BellSouth merger possibility has come up in waves over the past three years, but it's not something we talk about," said BellSouth spokesman Todd Smith.

Giving credence to the idea is the fact that revenues at AT&T and other carriers have declined in the past two years, even as the number of customers has grown. That creates a marketplace ripe for consolidation, said Tim Smith, another analyst at Gartner.

AT&T Tuesday reported a revenue loss in its third quarter, although income for the period was higher.

Pultz also pointed out that AT&T CEO and Chairman David Dorman lives in Atlanta, the home of BellSouth.

With merger talk prominent, the analysts said customers should renegotiate their long-term contracts to give them more options if they don't like a merger partner. "Customers need to be able to say, 'I don't like this new partner, and I don't think you'll follow your earlier strategy,'" Pultz said.

Following the analysts' presentation, several AT&T customers said they fear a newly-combined entity could move in directions that could be adverse to their current internal network plans. They might be right, Pultz said, noting that past mergers have led to technology shifts customers couldn't predict.

Knowledge Learning Corp. recently chose AT&T as its principal voice and data service provider for nationwide services for 25,000 workers, according to Matthew Mitchell, Golden, Colo.-based vice president of information services at the company.

Mitchell said he is alert to news about AT&T, but feels the multimillion-dollar deal Knowledge signed with the company will still be good even if a merger takes place. One reason, he said, is that "any merger would take two to three years" to have a full effect. AT&T was chosen over other carriers because it had both long-distance and local voice and data services, with plans for local services that other long-distance carriers couldn't match, Mitchell said.

Pultz said AT&T has lately set up a number of initiatives that should be attractive to customers, including a plan to consolidate its network technologies and improve customer service by speeding up the time needed to provision new services and respond to complaints.

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