Networking

SBC to acquire AT&T for $16 billion

SBC says the deal will give it one of the world's "most widely recognized and respected" brand names.

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By Dawn Kawamoto
Staff Writer, CNET News.com

SBC Communications on Monday announced plans to acquire AT&T in a $16 billion deal, a move designed to bolster SBC's sales to enterprise customers nationwide and give it new national and global networks.

The deal also ends more than 100 years of independence for AT&T, also known as Ma Bell, which was forced by federal antitrust regulators to break up its operations in 1984. That spawned the creation of the Baby Bells, including SBC, which focused on local telephone services, while Ma Bell served as a long-distance carrier.


Edward Whitacre Jr.
chairman and CEO,
SBC

"We are combining AT&T's national and global networks and expertise with SBC's strong platforms and skills in local exchange service, wireless and broadband," Edward Whitacre Jr., SBC's chairman and chief executive, said in a statement.

Telephone companies of late have been engaged in a turf war with cable companies and Net phone carriers, which have encroached on the Bells' role as the primary source for delivering phone calls. By the same token, telephone carriers have been looking at ways to expand their markets, by delving into wireless and offering high-speed Internet connections.

AT&T will be bringing to the table its global IP-based networks and fast-growing voice over Internet Protocol (VoIP) business, which it sells in 100 major markets. AT&T operates 26 Internet data centers worldwide, equally divided between the United States and other countries.

SBC will also retain AT&T's brand name, though it is not clear how the brand will be used. AT&T's brand is well-established, especially among large corporate customers, whereas SBC has been a regional telecommunications carrier, with its main presence in the western and southwestern states.

"We value the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world, and it will certainly be a part of the new company's future," Whitacre said in a statement.

In addition, SBC will inherit AT&T Labs, which globally has more than 5,800 issued and pending patents.

SBC, meanwhile, has a strong presence in the local market with 52 million phone lines and 5.1 million DSL lines. That presence in the local consumer market contrasts with AT&T's decision in July to forgo pursuing new local customers and focus instead on corporate accounts.

Monday's deal will also bring full circle what was once AT&T's wireless service. Four years ago, Ma Bell spun off its wireless operations in a $10 billion IPO as part of a major restructuring, forming the independent AT&T Wireless. But last year, AT&T Wireless was sold to Cingular Wireless, a joint venture in which SBC holds a 60 percent ownership stake. The other 40 percent of Cingular is owned by BellSouth. Cingular has a temporary license to use the AT&T Wireless brand while it transitions the service off of the AT&T-based name and logo.

Under the deal, AT&T shareholders will receive 0.77942 shares of SBC common stock for every share of AT&T, which translates into $18.41 a share. AT&T investors will also receive $1.30 a share in a special dividend. The deal is expected to close in the first half of next year.

SBC expects the AT&T acquisition to contribute to its earnings growth in 2008.

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