• by Gavin O'Malley  @mp_gavin, March 7, 2006

AT&T Corporation's announcement Sunday that it intends to purchase BellSouth for $67 billion, on the heels of SBC Communications' November acquisition of AT&T, ushers in a new era of consolidation--but also creates uncertainty about the future of broadband access.

One large unanswered question is whether the deal will ultimately make broadband more available and affordable, or the opposite, said Jupiter Research analyst Joseph Laszlo. "You'd think consumers would benefit when service providers eliminate massive redundancies, as is the case here," Laszlo said. "But it's very possible that the short-term benefits could be as minor as the long-term sacrifices are major if it leads to less competition."

The deal also calls attention to a brewing battle about whether Congress should impose laws requiring "net neutrality." Such laws would prohibit Internet access companies from discriminating against other businesses online by blocking access to their sites, or charging them more for delivery of content. Some analysts and activist groups worry that Internet access companies are increasingly likely to deny consumers access to competitors' services online, and that industry consolidation worsens this tendency.

"Congress and the FCC have all been discussing whether providers should give access to everyone, and this acquisition will bring more attention to that debate," said Laszlo.

Last year, at least two broadband providers prevented consumers from receiving Voice over Internet Protocol calls through Vonage. Senator Ron Wyden (D-Ore.) recently introduced legislation to preserve net neutrality; at a hearing last month, he said he wanted to "assure that information from a company like J. Crew is not treated worse than information from a company like L.L. Bean."

Another uncertainty is what impact the buyout would have on AT&T's and BellSouth's Internet partners, according to a Merrill Lynch report released Monday. Yahoo already offers a co-branded broadband Internet service with both AT&T and BellSouth, which would not be impacted by the merger, the report surmised. BellSouth, however, is an AdWords reseller for Google through its Yellow Pages operation, and Merrill questioned whether the partnership would continue or be extended after the merger.

The Merrill Lynch report also deemed each of the telecoms' ad agencies--Omnicom, WPP's Grey, and Interpublic's Initiative Media--at risk of losing business if the acquisition goes through.

Regarding Yellowpages.com--which AT&T and BellSouth jointly operate--Merrill predicted the merger would not have any significant impact on the Internet property.

The Merrill Lynch report, however, did foresee opportunities for YellowPages print side, in part because BellSouth is currently the only major Yellow Pages publisher in the United States still printing its own directories--through wholly-owned subsidiary Stevens Graphics--while AT&T recently extended its relationship with R.R. Donnelley.

Neal Polachek, analyst for The Kelsey Group, went one step further and predicted that a combined AT&T and BellSouth might sell the print and online component of YellowPages, which would help AT&T cover the buyout costs of the acquisition. "In today's market, I think they could get 30 billion for YellowPages, so I'd be surprised if they don't sell to pay off the debt of the buyout."