The Titans Of Telecom Face Off
AT& T's Whitacre and Verizon's Seidenberg Are Battling for Supremacy In a Highly Competitive Sector, Using Acquisitions and Bets on the Future

By Arshad Mohammed
Washington Post Staff Writer
Tuesday, March 7, 2006

One started out as an engineer in Lubbock, Tex.; the other as a cable-splicer's assistant in the Bronx.

From those humble beginnings, AT&T Inc. Chairman Edward E. Whitacre Jr. and Verizon Communications Inc. Chairman Ivan G. Seidenberg have built the two biggest U.S. telecommunications companies.

With Sunday's announcement of AT&T's agreement to buy BellSouth Corp. for about $67 billion in stock, Whitacre, 64, capped a career that has transformed what was once the smallest of the Baby Bells, Southwestern Bell Corp., into the largest local-phone and wireless company in the country.

What immediately followed was speculation about what Verizon's Seidenberg, 59, might do next to one-up his biggest competitor for more than a decade. He has already said publicly that he'd like to buy out Vodafone Group PLC's 45 percent stake in Verizon Wireless, the second-largest U.S. mobile phone company.

For years, since Whitacre was the head of Southwestern Bell Corp. and Seidenberg was running Bell Atlantic and before that Nynex, the two have outdone each other through a string of mergers, acquisitions and partnerships.

People who have followed Whitacre's trajectory describe him as unusually aggressive and competitive, fond of the bold stroke and seldom given to self-doubt afterward.

"It's a sport. It's a competition. In this business, scale really matters," said Reed Hundt, a former chairman of the Federal Communications Commission who has dealt with both men over many years. "It's like NFL linemen. You want 'em big, you want 'em fast, but most important, you want 'em big."

The aim of the AT&T-BellSouth merger is to strengthen AT&T for what is shaping up as a battle against the cable companies to sell consumers bundles of video, high-speed Internet, wireless and traditional land-line telephone service. The deal, if approved by regulators, would also give AT&T full control of Cingular Wireless, the nation's largest mobile phone company, which it runs as a joint venture with BellSouth.

San Antonio-based AT&T yesterday said it planned to cut about 10,000 jobs, through attrition where possible, as part of $18 billion in cost savings it projects from the merger with Atlanta-based BellSouth. AT&T's stock price slid 97 cents, to $27.02, as the market digested the merger, while BellSouth's rose $3.04, to $34.50. Verizon shares rose 15 cents, to $33.73.

The AT&T-BellSouth merger, which will give the combined company local-phone service in 22 states in the South, Midwest and West, immediately raised questions whether Verizon would try to buy another Bell.

Michael H. Salsbury, a telecom lawyer with Chadbourne & Parke LLP who was a former top executive at MCI Inc., said Seidenberg would continue with his basic strategy and dismissed speculation he might bid for heavily indebted Qwest Communications International Inc., the main local phone company in much of the West.

"If you had a dollar to invest and you were Ivan Seidenberg, would you invest it in Qwest or in wireless? Where would you get a better return? Wireless." Salsbury said.

Verizon spokesman Peter Thonis declined comment on whether the New York-based company might be interested in Qwest, and he reiterated the company's long-standing position on Vodafone's stake in Verizon Wireless.

While Whitacre has a reputation for boldness, Seidenberg is pursuing what many in the industry regard as a more audacious and costly strategy of running fiber-optic cables right to people's homes to carry what he hopes will be increasing video and high-speed Internet traffic. It is far more expensive to run new fiber-optic cables to customers' homes, but the technology allows for the transmission of more data than traditional copper wires because glass fibers can carry data faster.

Verizon is spending billions of dollars to build out its new all-fiber network, while AT&T is taking a less-costly approach by running fiber-optic cable to neighborhoods and using copper wires from there, which may allow it to offer such services at lower cost, albeit with less bandwidth. Bandwidth is the rate that information can be transmitted along a communications line.

"The risk associated with [Verizon's fiber-optic] build-out is higher. That risk may be acceptable because the returns are so great -- lots more bandwidth," said Ellen Daley, an analyst with Forrester Research Inc. "The risk on the AT&T side is less, and the gain is less as well."

Analysts said that one advantage to AT&T's strategy is that it may be able to build its high-speed network faster than Verizon, allowing it to achieve economies of scale and to negotiate discounts from content providers as it competes directly with cable companies.

Consumer groups said the AT&T-BellSouth merger would probably lead to higher prices, arguing that the telephone companies and the cable companies will effectively be a duopoly with little interest in aggressive competition.

While the consensus view among analysts was that the merger would be approved, the concentration of power could still trip some concerns on Capitol Hill or among regulators, especially when it comes to open access on the Internet.

"These companies were going to compete against each other. Instead, we have just the opposite," and that makes it all the more important to ensure that these companies don't become gatekeepers of the Internet, said Rep. Edward J. Markey (D-Mass.), the ranking Democrat on the House subcommittee on telecommunications. "The United States needs open networks."

As a condition of approval for both the Verizon-MCI and SBC-AT&T mergers last year, the companies agreed not to impose restrictions on Internet traffic, which in effect would enable some programs to work better than others. That provision sunsets two years after the close of those mergers.

In recent months, Seidenberg, Whitacre and BellSouth chief technology officer Bill Smith have all said they would prefer a system that would allow the carriers to charge to carry some kinds of traffic -- statements that have prompted concern from Internet companies such as Google Inc., which rely on Internet pipes to reach consumers.

With the latest proposed merger, critics of further consolidation say consumers, regulators and software companies should seek to codify "network neutrality" into law for all carriers.

"This time around, this merger should put media and content providers on high alert," said Jason Oxman, vice president of regulatory affairs for Comptel, an association of competitive carriers. "This could be the end of the line if the Internet community doesn't recognize the threat to the open Internet."

Federal Communications Commission Chairman Kevin J. Martin, who initially opposed the network neutrality provisions in the earlier two mergers but voted for them in the end, did not tip his hand yesterday.

"We will carefully weigh the information presented, examining any allegations of specific harm in individual markets and the potential benefits for the deployment of new services," he said in a written statement.

Staff writer Yuki Noguchi contributed to this report.

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