The Bell Atlantic/ TCI Merger The New Telecommunications Paradigm?

6 Pages·1993·0.4 MB·English

—
October1993
Vol.IV,No.15
MAP
INPUT
Routeto:
Research
Bulletin
APublicationfromINPUT'SU.S.InformationServicesMarketAnalysisProgram
The Bell Atlantic/TCI Merger
The NewTelecommunications Paradigm?
ReadingtheTeaLeaves INPUTnotedthattheClintonadministration's
objectiveofconstructinganationwide
INPUT'S1993annualanalysisandfive-year broadbandnetworkthatwoul—dincludea500-
forecastoftheU.S.Telecommunications channelcableTVcapabil—ity tlienew
marketforinformationservicesidentifiedtlie electronicsuperhighway willprovideastrong
convergenceofcommunicationsindustries, impetusforchangeinthetelecommunications
suchascommoncarrierandcabletelevision,as industry. Variouspotentialacquisitionsand
keybusinesstrendsthatwillhavefar-reaching alliancesbetwee—ncommunicationscompanies
effectsonthismarketplace. wereconsidered butnotamergerbetween
BellAtlanticandTelecommunications,Inc.
Examplesincludedpurchasedinterestsor thelargestandrichestofthecable-TV
acquisitionsbymanyoftheregionalBell operators. Whenthetelecommunications
holdingcompanies(RBOCs). Theseincluded industryspeculatedaboutpotentialpartnersfor
plannedorcompletedtransactionsbetween TCI,AT&Twasthecompanymostfrequently
SouthwesternBellandHauser mentioned. Thenegotiationswerewell
Communications,USWestandTime/Warner, concealeduntiltheOct—ober13announcement
NynexandViacom,andBellSouthandPrime oftheplannedmerger asignificantfeatinan
ManagementCo. industrywhereinformationleaksare
commonplace. Andwhentheannouncement
TheINPUTreportstatedthat"majorcommon wasmade—,thespecificssurjjrisedthe
carriersandcabletelevisionorganizationsare industry notsomuchforthewhatofthedeal,
intheprocessofeithermergingorformingnew butforthewfioandthehowmuch.
alliances. Thebrassringthateveryoneisnow
reachingforisbroadbandinteractivetelevision TheBellAtlanticrrCI Merger
services,includingvoice,dataandmultimedia.
Thisisfacilitatedthroughaconvergenceof Thedealappearsquitesimple. BellAtlantic
computing,communicationsandentertainment willacquiretheassetsofTCIandLiberty
[resources]. Thefocusnowseemstofavor MediaCorporation(TCI'scable-programming
consumerseiA'icesoverbusinessservices." sibling)forBellAtlanticstockvaluedatabout
©1993byINPUT.Reproduclionprohibited.
RESEARCHBULLETIN
$12billion. Inaddition,BellAtlanticwill Together,TCIandBellAtlanticwillhavemore
assumeLiberty's$9-10billiondebt,bringing than22millioncustomersin59ofthetop100
thetotalcostofthemergertomorethan$21 U.S.markets,includingSanFrancisco,Los
billion,andmakingitoneofthelargestin Angeles,Chicago,DallasandNewYork. TCI's
Americancorporatehistory. high-capacitycoaxcanconnectAtlanticBell's
18millionmilesoftelephonelinesdirectlyto
Othertelecommunicationsdealshavebeenin consumerhomes,whileLibertyMutual's
themulti-billiondollarrange,butnonewere,or programmingresourcescanprovideaccesstoa
arel—ikelytobeanylargerthanBellAtlantic- broadrangeofvideoalternatives.
TCI thatis,ifitisallowedbythecourts,the
FCCandCongresstogotocompletion. Competitively,amergedBellAtlantic/TCI
wouldvie directlywithoth—ertelephone
Organizationally,BellAtlanticChairman companiesforlocalservice asignificant
RaymondW.Smith,willcontinueinthatrole, challengetoNynex,Ameritech,PacificTelesis,
whileJohnC.Malone,CEOofTCI,will USWest,SouthwesternBellandBellSouth.
becomeVice-ChairmanofBellAtlantic. Mr. Proponentsbelievesuchcompetitionwilldrive
Malone,whohasearnedthenicknameDarth downtliecostofbothlong-distanceandlocal
Vaderforhisstrongmanagementstyle,will calls.
becomeabillionaireasaresultofthemerger,
buthewillnolongerberunningTCIand Technically,thetwocompanies'strengths
LibertyandtheywillcarryBellAtlantic's complementeachother,andoffertheobvious
identity. Malone,anelectricalengineer,has possibilityofbothtransformingBellAtlantic's
statedthathehasbecometiredofmanaginga networkintoahugevideodeliverysystem,and
largecompanyandwelcomesthefactthathe enhancingTCI'scablesystemsforvoice
willnothaveanyexecutiveresponsibilitiesat telephoneservice. Futurepossibilifieswould
BellAtlantic. Now,hesays,hewillbeableto includevideo-on-demand,enhancedhome
concentrateonhisfirstlove,inventionand computerapplications(suchasmuUi-media),
creativity,andislookingforwardtofurtlier "smart"programguidesthatcanlearnwhata
developingandenhancingLiberty'smedia familylikestowatch,telephonecallsoncable
resources. systemsandtelevisionprogrammingofferedon
telephonelines. Andthesepossibilitiesare
WhatdoBellAtlanticandTCIGet? onlythetipoftheiceberg,sinceMr.Malone
reportedlyhasbeengivenfreereintoexplore
BellAtlantichasmorethan13million newtechnologyandenterintonewbusiness
telephoneandcellularcustomersinthemid- ventures.
Atlanticregion. BellAtlanticisverystrongin
networkingbutdoesn'thavehigh-capacity ProsandCons
circuitstoconsumer'shomes.
Ifth—isnewventuresoundstoogoodtobe
TCIowns1,200cablesystemsin48states true it'snot! OtherRBOCshavebeentaking
servingmorethan13millionsubscribers,10 tentativestepsinthisdirectionforthelastfew
millionofwhichpayforpremiumchannels years. Theconvergenceandcompatibilityof
suchastheEncoremoviechannel(inwhich cableandtelephonesystemshasbeenobvious
TCIhasanequityinterest). TCIalsohas forsometime,andmostofthemajorplayersin
interestsinLibertyMedia,theDiscovery thetelecommunicationsindustryhave
Channel,theHomeShoppingNetworkand recognizedthisandtakenstepsordeveloped
TurnerBroadcasting. And,perhapsmost strategiestoexpandtheiractivitiesintoother
importantly,TCIhashigh-capacitycoaxial communicationsareas,throughalliances,
connectionstoitscustomer'shomes. acquisitionsormergers.
©1993byINPUT.Reproductionprohibited.
RESEARCHBULLETIN
Theprimaryuncertaintyhasbeenthereactions whetherthecommunicationslawsenacted
offederal,stateandlocalregulatoryagenciesto yearsagonowapplytonewtechnologyandan
thesestepstoexpandtelecommunications expandeddomesticandglobal
marketpresence. Atissueiswhethermergers telecommunicationsenvironment. Becausethe
betweencablesystemoperatorsandtelephone BellAtlantic/rCImergeroffersaprototypical
companiesincreasecompetitionorcreate componentofanationwidecommunications
super-monopolies. Proponentsofsuchmergers resource.Congresswillalsobeforcedtotake
arguethatacombinedBellAtlantic/TCIcan anunambiguousstandontheClinton
nowcompetewithotherRBOCsintheirown administration'sproposedelectronic
marketareas,therebyofferingconsumersa superhighway,aconceptthatalreadyhasstrong
servicealternativeandincreasingcompetition. industrysupport.
Theendresult,theyclaim,shouldbelower
pricestotheend-user. JamesH.Quelle,actingchairmanoftheFCC,
statedthathedidnotwanttoprejudgethe
Opponentsofmergersfeelthatthebigare merger,butthatitcouldspeedthe
simplygettingbigger,andthatwhentwo implementationoftheelectronicsuperhighway.
monopolie—saremerged,younowhaveasuper- VicePresidentAlGorehasstatedthat"the
monopoly anentitynotnecessarilymotivated administrationsupportsanydevelopmentinthe
towardsincreasedcompetitionorlowerprices. communicationsmarketplacethatis
procompetitiveandfostersthedevelopmentof
RegulatoryJudgment anopen,interactiveinformationinfrastrucmre."
Asthedealcurrentlystands.BellAtlanticwill SenatorHowardM.Metzenbaum(D-Ohio),
requirecourtwaiversallowingtheTCImerger, chairmanoftheSenateJudiciarysubcommittee
becausethetermsofthe1982breakupofthe onantitrustissues,seesthemergerascreatinga
BellSystemprohibitedtheRBOCsfrom "mega-monster"thatwouldresultinhigher
providinglong-distanceservice. TCI'ssatelhte cableandtelevisionrates.
distributionsystemforitsprogrammingis
consideredtobealong-distanceserviceunder Asisoftensaidinlegalmatters,"thejuryis
the1982ruling. stillout"onthemerger,butmanyindustry
expertsfeelitwilltakeplaceafterthe
Congresshasalsoprohibitedtelephone obligatoryreviewprocessiscompleted,and
companiesfromofferingcableserviceintheir everyonehashadtheirsay. Thereviewprocess
operatingareas. Inhopesofeasingregulatory couldtakeaslongastwoyears,butevenifit
concerns,RaySmithdoesn'tplantochallenge takeslongerthemergermaystilloccursince
thisban,andhasindicatedthathewillsellthe theagreementbetweenBellAtianticandTCI
TCIholdingslocatedintheBellAtiantic allowsaneight-yearwindowforthetwosides
servicearea. BellAtlantichasalreadywona toconsummatethedeal.
citassseearvlilcoewianrgeait(ttoheofjfuedrgvmiednetoipsrnoogwraumnmdienrgin WhoGains? WhoLoses?
appeal),butMr.Smithseemstonotwantto
presshisluckwiththeBellAtiantic/TCIdeal. INPUTmonitorsthetelecommunications
DivestingtheTCIholdingsinBellAtiantic's industryasanintegralpartofthemarketfor
marketareawouldremoveapossibleobstacle informationservices. AsshowninExhibit1,
toapprovalofthemerger. INPUT'Sforecastfortheindustry's
expendituresforinformationservicesindicates
Inevitably,thefinaldecisionwillrestwith astrong17%compoundannualgrowthrate
Congressandtheregulatoryagencies. (CAGR),frommoretiian$4billionin1993to
Congresswillcertainlyhavetoconsider almost$9billionin1998. Thisgrowtiireflects
©1993byINPUT.Reproductionprohibited. 3
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balostohitthseabfiulnidtyamteonctoanlshuemaeltihnoffontnhiastiionndussetrrvyicaensd Exhibit1
offeringssuchasapplicationssoftware TelecommunicationsSector
products,professional(consulting)services, U.S.InformationServicesMarket
systemsintegrationservices,processing 1993-1998
services,networkservicesandfourother
categoriesofservicesprovidedbyvendors
outsideofabusiness'ITfunction.
Asnotedinthefirstsectionofthisbulletin,
INPUTfeelstherehasbeenagrowingtrendin
thecommunicationsindustrytowards
establishingnewrelationshipsthatincrease
serviceoptions,expandmarkets,andimprove
competitivepositioning. Manyofthese
alliances,acquisitionsormergershaveoccurred
withoutsignificantnoteorcomment. And
others,liketheBellAtlantic/TCImerger,attract
nationwideattention,commentandanalysis,
andoccasionallycriticism.
pCraobvliedecrosmhpaavneiebseeanndtrtaedliteipohnoanlerisvearlvsi—ceseach 1993 CAGR 1998
jealouslyguardingthemarketwhichCongress, 17%
theFCCandthecourtshavedefinedtobe
theirs. Whenintrusiontookplace,the beforcedtobringrulingsup-to-date. Logical
courtroom,nottheboardroom,wasthevenuein mergers,suchasBellAtlantic/TCI,will
whichjudgmentwasrenderedanddealsblessed certainlybesubjecttoantitrustscrutiny,butnot
orkilled. Thisisstilltruetoday,butprobably undulydelayedordeniedbyoutdated
notformuchlonger,asregulationsareupdated regulation. (TCI,asamatterofinterest,has
tomoreaccuratelyreflectthecurrent beentherepeatedtargetofantitrustreview,and
telecommunicationsenvironment. hasinthepast,successfullymeteach
challenge.)
Technologyisopeningtoomanypathsof
intersectionforcommunicationscompaniesto Suchareturntobusiness,legislativeand
remainisolatedbyfunctionorevengeography. technologicalreality(orcurrency)willbegood
IftheClintondreamofanationwideelectronic foralmosteveryone. Consumersand
smuapneyrhoifgthhweaayrtiisfitcoiableccoonsmteraainptrsacotnicbalotrheality, obufssienrevsisceesswfirlolmhaalvteerancacteisvsetsoouarbcerso—adearnrange
competitionandregulationaregoing—tohaveto environmentthathashistoricallyfosteredboth
berevisedtoreflectcurrentrealities ^not innovationandreducedcosts.
removedcompletely,butupdatedtoallowone
ofAmerica'sgreatstrengths,itsvoiceanddata Telecommunicationsserviceproviderswill
communicationsresources,tocontinueto havemorefreedomtocompetetotheextent
flourish. theirproducts,markets,pricesandstrategies
allow.
Asbothbusinessandconsumerdemandsfor
greateraccesstocommunicationsresources Businessesthatneedtelecommunications
increase,regulatoryagenciesatalllevelswill serviceswillhavemoreoptions,andthe
e1993byINPUT.Reproductionprohibited.
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'
t
RESEARCHBULLETIN
networkservicesproviderstothosebusinesses
willbeabletoofferawiderrangeofproducts.
Ultimately,theprovidersofinformation
services(includingnetworkservices)willhave
anexpandedmarketinwhichtoselltheir
products.
TheNewTelecommunications
Paradigm?
Whenthesmokehasclearedandthedealis
done,theBellAtlantic/TCImergermaybe
regardedastheeventthatcreat—edanew
telecommunicationsparadigm abroad-based
telecommunicationsconglomeratecompetingin
asmanymarketsasitsproductswillpermit,
andconsiderablylesshamperedbyoutdated
regulations.
Iftherewereonlyonesuchmegamonopoly,it
wouldseemthatwehavereturnedtothedays
whenAT&T(andtheBellSystem)wastheonly
significantoptionfornationwideserviceand
interconnectivity. ButeachoftheRBOCs,
alongwithMCIandothercompanies,all
benefitfromreducedcontrols,andarefreerto
competewithBellAtlantictotheextenttheir
abilitiesallow. Thusthenewparadigmdefines
notjustacompany,butthetelecommunications
serviceprovider'sbusinessstructureandmarket
strategythataremostlikelytosucceedinthe
1990sandbeyond.
RoTbheIirfstyRLoe.usGehoaaorvcdehwqiuBneulsltaetitoIinnNsPiosUrTics,osum1e8md8e1anstLpsaanrodtniontfghisIsNDbPruUlilvTee't,iSnM,IonpuflnoetraamsieantciaVolinleySwoe,ruvrCilAcoecsa9lM4a0Ir4Nk3Pe-Ut08TA4n8oar,lgy(asn4ii1sz5a)Ptr9io6og1nr-oa3rm3.00.
e1993byINPUT.Reproductionprohiblled. §
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