12 Comments

Summary:

The big mergers have finally been concluded, and there is a lot of people who are wondering what BellSouth’s future is going to be. BellSouth CEO Duane Ackerman had rejected an overture from SBC, according to USA Today. He had waffled on a deal with AT&T, […]

The big mergers have finally been concluded, and there is a lot of people who are wondering what BellSouth’s future is going to be. BellSouth CEO Duane Ackerman had rejected an overture from SBC, according to USA Today. He had waffled on a deal with AT&T, and now well he is the odd man out. Wall Street (analysts) thinks that as the competition cranks-up, BellSouth is going to feel the heat and the profits will simply keep walking out of the door.

Here is the Bell track record so far: BellSouth has 9 states, $28 billion in sales and profit margin of 22.4%. SBC has 50 states, more than 150 countries, $110 billion in sales, and 14.4% profit margins. Verizon has $90 billion in sales, and 18.4% in profit margins. Clearly, bigger doesn’t make you better.

“We may have given up some scale” by passing on deals, Ackerman says, winding up for his punch line. “But nobody has outperformed us.”

A lot of people are feeling negative on the company, but I am not. It is one of the innovators, reluctant as it might be, amongst Bells. It will roll-out video services much before their Cingular partner SBC. They have some of the fastest growing geographies under their footprint. They could buy Sprint’s local business, and could go after some of the smaller CLECs. They could become reluctant buyers of Qwest, or even some of the smaller independent companies like Surewest. There is a lot of things they can do.

No, don’t write them off yet.

  1. Jacob Varghese Tuesday, November 1, 2005

    I thought this was a great idea (from the USA today piece) from Ackerman
    “merge the assets of BellSouth and SBC to create three separately traded companies — a traditional phone company, representing the local and long-distance assets; a wireless business; and Yellow Pages”

    He wants to make the right moves not just any move.

    Share
  2. Sell Cingular stake to AT&T/SBC
    Buy Sprint (Sextel, LD, and IP)

    Be really bold, add Vonage as well

    Share
  3. whatever it is that he is going to do, it should not be boring. don’t you think?

    Share
  4. Jacob Varghese Tuesday, November 1, 2005

    Jake, Considering that Cingular makes up 40% of their bottom line, why would you think they would want to get out of that business?

    They should spin off Cingular as a separate entity to really capitalize on it and limit any possible conflicts between sbc and bell south.
    That’s my prediction.

    Share
  5. Jacob Varghese Tuesday, November 1, 2005

    Maybe when Cingular is a separate entity, Deutsche Telecom will make a move at it. Makes sense for them.

    Share
  6. As I was considering these developments, I got to thinking. Sprint’s network is used by Virgin Mobile USA, Disney, and Qwest already. AT&T will probably go with Cingular. I’ll bet there are lots of other wholesaling relationships out there. Given that physical infrastructure is a bitch to build out and maintain, I wonder if more and more cell service providers will choose to operate on someone else’s network. Assuming they do, will we wind up with one or two cell networks used by all service providers and thus all cell users?

    Share
  7. Jesse Kopelman Tuesday, November 1, 2005

    I think BLS proves it is possible to be a regional player and still have good economies of scale (actually Comcast proves this too). I don’t see why they necessarily need to do anything to go national. National reach is important only in mobility, and they already get this from Cingular. Now, selling out the Cingular stake to SBC and becoming a MVNO would make good sense . . .

    Share
  8. Seems to me that the reason BellSouth has better performance (higher margins) is that they currently face less competition, on average, in their markets. That region thus becomes a great big target for SBC (AT&T) and Verizon. Expect those margins to fall sharply in coming years.

    Wireless is the remaining growth market, don’t expect BellSouth to part with Cingular anytime soon. (Triple play is not a growth market, it’s a replacement market for consumer wireline voice.)

    Share
  9. You highlight the value that Cingular can bring.

    With SBC and Cingular both choosing the same IMS platform, it seems possible that they are designing for a combined future.

    All of Sextel may not be as interesting as part of Cingular, but maybe it is.

    Share
  10. Om, how do you say SBC-AT&T will have revenues of $110 billion? SBC’s revenue is about $42 billion and AT&T’s declining annual revenue is about $28 billion.

    Share

Comments have been disabled for this post