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AT&T-BellSouth Merger grows from weakness
USA Today, March 7, 2006
Kevin Maney
Three years ago, BellSouth CEO Duane Ackerman popped into our offices to tell us how miserable his business was.
Dissing your company is not normal everyday CEO behavior. But Ackerman needed regulatory help from Washington. So he might have been acting like a kid who wakes up on a school day with a sniffle and pleads that he's caught the bird flu. But still, he certainly convinced me that BellSouth — and the local phone industry in general — was about the suckiest business going.
"I've lost 30% to 34% of business customers across our territory — 50% in some areas," he said, noting the success of competitors such as Level 3 and (back then) WorldCom. "On the consumer side, we've lost 8% to 9%." He brought out charts with lines and bars going in worrisome directions, showing revenue shrinking, stock prices falling and huge fixed costs that wouldn't go away.
And that was before Internet phone calls, cable companies and wireless turned into more serious competitors to wired phones. If anything, BellSouth's future looks worse now than it did then.
Worried that a merged AT&T and BellSouth are like some Ma Bell Frankenstein, reassembled and about to terrorize all of communications? Here's another view from some smart analysts: AT&T is already a leaky boat, and it's about to pay $67 billion for another hole.
Francis McInerney of research firm North River Ventures tends to speak in dense consultantese and illustrate points by using circles on X-Y axis charts. But over the past decade, he's been right more often than not about telecom companies. His charts show that AT&T can't grow much and has poor "capital velocity" — which essentially means the company has so much debt and overhead that it can't use its income efficiently to stay ahead of the competition.
"Buying BellSouth does nothing to solve AT&T's core problem," McInerney says. "All AT&T does with this deal is slow down its own decline."
