Channel Sees Dollar Signs In AT&T Merger

Announced last week, the $67 billion all-stock transaction between AT&T and BellSouth, if approved by regulators, will mean AT&T no longer has to pay BellSouth for local phone access to eight Southeastern states that BellSouth currently services. The merger, which is expected to close within a year, will also put Cingular Wireless into the custody of one company, because AT&T owns about 60 percent of Cingular, while BellSouth owns the balance, according to statements from both companies.

San Antonio-based AT&T said it will cut 10,000 jobs following the merger, and Atlanta-based BellSouth said in December it would begin laying off 1,500 managers. These cost-cutting measures, coupled with the savings AT&T will see from reduced local access costs in former BellSouth territory, could enrich AT&T partners if the carrier leverages the savings to reduce its wholesale costs for voice and data, said Quy Nguyen, CEO of Allyance Communications Networks, a master agent and AT&T partner in Irvine, Calif.

"[AT&T] won't need two channel managers where one will do, and that will lower costs," said Nguyen, who also would like to see better margins from a combined AT&T/BellSouth.

An AT&T representative said it was too early to speculate whether AT&T would reduce wholesale prices to agents following the merger. Todd Smith, media relations manager at BellSouth, declined to comment.

From a technical angle, consolidation among carriers such as AT&T and SBC Communications, Verizon and MCI, and now the planned merger of AT&T and BellSouth has little effect on the service quality of voice and data traffic running in and out of business customers, said Michael Cooch, CEO of Everon, an MSP in Boston. But as the trusted adviser to his customers, Cooch said he is tired of not being compensated by carriers when he sends business their way.

"We take over management of our customers' entire network, anything that has to do with electricity. With regards to voice and data, right now we end up arranging all of that for [customers], we just don't get any cut of it," Cooch said. "And we definitely want a relationship with nationwide providers because we have customers all over the country."

Aware of the opportunity for added revenue from AT&T and other carriers, Cooch said he is seriously considering becoming an agent.

Solution providers looking to position themselves in the revenue stream of carriers can sign on as sub-agents for master agents such as Allyance with no minimum sales commitment or technical certification, Nguyen said. Solution providers acting as sub-agents can reap margins ranging from 6 percent to as high as 16 percent of a customer's monthly recurring telecom bill, and a VAR's master agent can help prevent carriers such as AT&T and Verizon from selling competing services against them, Nguyen said.

After the merger, AT&T will have significant savings to pass on to agents, if it chooses to do so, said a large East Coast master agent, who requested anonymity. The cost of "long-haul" telecommunications services has been going down at a rate of about 20 percent per year since the mid-1990s, but not the cost of "last-mile" service, for which AT&T has been having to pay BellSouth, the master agent said.

One less Baby Bell could spell more opportunity for smaller carriers such as Masergy and Level 3 Communications, the master agent said. In a world where common business practice often calls for several bids on a prospective account, customers that have fewer big carriers to choose from will probably look at smaller carriers, he said. "I think this is going to help smaller, niche [bandwidth] providers. They will look at fewer big guys, meaning they will look at more smaller ones," the master agent said.

On the wireless side, the merger likely will mean little change in the way customers and agents deal with Cingular, Nguyen said. AT&T and BellSouth have kept their distance from Cingular to allow the wireless carrierthe nation's largestto operate without any interference from the telcos, he said.

Still, a face-off between rivals Cingular, Verizon Wireless and Sprint for business-grade wireless broadband service is just around the corner, said Paul Giobbi, president of Zumasys, a wireless solution provider in Lake Forest, Calif.

Cingular is putting the finishing touches on its high-speed downlink packet access (HSDPA) solution, a wireless broadband solution that should go nationwide this year, Giobbi said. Capable of throughput speeds of around 2 Mbps, HSDPA will replace Cingular's existing Edge solution, which has typical throughput speeds of between 100 Kbps and 130 Kbps, much slower than the 400"700-Kbps speeds of the separate EVDO wireless broadband solutions from Verizon and Sprint, he said.

Faster HSDPA speeds coupled with Cingular's nationwide coverage will pose a challenge to Verizon and Sprint, which have smaller coverage footprints, Giobbi said.