AT&T-BellSouth merger grows from weakness

[SOURCE: USAToday, AUTHOR: Editorial Staff]
[Commentary] 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. One analyst says 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. The local phone companies' biggest tribulation — and this includes AT&T, BellSouth, Verizon and Qwest — is that their main business is built on an expensive infrastructure that's quickly becoming obsolete. They are like railroads at the dawn of the jet age. They send calls around using circuit-switched networks when the world is moving to Internet-style networks. They have millions of miles of skinny copper wire underground and on telephone poles at a time when whole cities are starting to build wireless broadband Internet systems that are better and cheaper. Analysts figure the local phone companies all together have $350 billion to $400 billion worth of obsolete assets on their books. They can't write them off without financially collapsing, so there they sit, slowly sucking the life out of these companies from inside, like tapeworms. AT&T and Verizon do have vibrant, growing wireless businesses, but it's just not enough help. Their local phone operations pull in billions of dollars of revenue, but that's not enough, either. The not-very-distant future threatens to be a lot more harsh for AT&T. Apparently, that future becomes more likely if the local phone companies merge to their hearts' content.
http://www.usatoday.com/printedition/money/20060308/maney08.art.htm

* AT&T could take aim at Verizon, Qwest markets
http://www.usatoday.com/printedition/money/20060308/phonewar08.art.htm