ITXPO - Potential AT&T merger puts customers on alert

LAKE BUENA VISTA, FLORIDA (10/24/2003) - Some AT&T Corp. customers are preparing themselves in case the telecommunications company merges with another carrier -- a possibility that was discussed at Gartner Inc.'s Symposium/ITxpo 2003 conference here this week.

One of the companies keeping an eye on the merger talk is Internap Network Services Corp., which provides a national overlay backbone network used by AT&T to support its Internet services. Atlanta-based Internap has tried to insulate itself by providing redundancy through the use of eight additional network backbones from other carriers, said Jeff Hacker, the company's national manager of alliance development.

"We did that because we didn't want all our eggs in one basket," he said, citing the possibility of consolidation in the telecommunications industry.

Gartner analyst Jay Pultz put the odds that AT&T will be bought by or merge with another carrier during the next several years at 40 percent. The potential suitor for AT&T that's mentioned most often is BellSouth Corp., Pultz said.

Declining revenue for AT&T and rival vendors has created a market that's ripe for consolidation, added Tim Smith, another analyst at Stamford, Conn.-based Gartner. For example, AT&T this week reported a 9 percent drop in third-quarter revenue on a year-over-year basis.

Neither AT&T nor Atlanta-based BellSouth would comment on the potential for a merger.

"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.

The Gartner analysts recommended that users renegotiate their long-term contracts with AT&T and other carriers to give them more options in the event a merger does take place. "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.

Several AT&T customers at the conference said privately that they fear a merged company might move in directions that could be adverse to their current network plans.

But Matthew Mitchell, vice president of information services at Knowledge Learning Corp. in San Rafael, Calif., said he isn't worried. Knowledge Learning, which runs early childhood development centers in 34 states, recently chose AT&T as its principal voice and data services provider for 25,000 workers nationwide.

Mitchell, who is based in Golden, Colo., said he's alert to any news about AT&T but added that he thinks the multimillion-dollar deal Knowledge Learning signed will still be good even if a merger does take place. One reason, he said, is that "any merger would take two to three years" to fully affect AT&T's operations.

Knowledge Learning chose AT&T over other carriers because it offers local voice and data services that other long-distance carriers couldn't match, Mitchell said.

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