Merger pressure rises after AT&T deal

The $67bn merger of AT&T and BellSouth to create the world?s largest telecoms company on Monday increased the pressure on rivals including Verizon Communications to join an industry-wide consolidation.

Announcing the deal on Monday, Edward Whitacre, AT&T?s chairman and chief executive, said the tie-up was ?a logical fit? that would enable the enlarged group to offer a full range of fixed line, wireless and advanced IP-based services to consumers and businesses. The merger reflected ?a realisation that the world is changing and it?s changing faster and faster,? he said. ?We saw that the sooner we did this, the better off we?d be.?

AT&T said it expected to cut 10,000 jobs between 2007 and 2009, as part of plans to eliminate $18bn in costs.

Although the Federal Communications Commission said it would ?carefully weigh? the proposed deal, senior company executives were confident it could win regulatory approval and be closed within a year. ?As a substantive matter, there are no obvious issues that would allow the government to block the deal; there could be things that we see on later, once the companies file their papers,? Michael Powell, a former FCC chairman, told the Financial Times.

Outside experts also expected regulatory scrutiny to be largely a matter of what conditions should be attached.

AT&T said the combined company would be better placed to roll out new services including internet television services and advanced broadband video, in competition with cable companies. Annual savings would average $2bn, starting in 2008.

AT&T said the merger would help position the combined company to roll out new services including IPTV and advanced broadband video services in competition with cable companies. Average annual savings per year would be $2bn starting in 2008.

The BellSouth purchase would also give AT&T sole control of Cingular Wireless, the biggest wireless carrier in the US. As a result, analysts noted, Verizon, its main rival, would be under pressure to buy out Vodafone?s 45 per cent stake in Verizon Wireless.

Shares in Vodafone gained 2.9 per cent in London to close at 125 pence. Verizon?s shares were up 1.25 per cent at $34 at noon in New York.

?Verizon may be pressured more to improve its business mix by becoming increasingly focused on its attempt to buy out the remaining 45 per cent of Verizon Wireless from Vodafone,? said Jason Armstrong of Goldman Sachs in a note to investors.

Verizon acknowledged that getting control of the Vodafone stake ? a deal that could be worth up to $50bn ? was a priority. It was ?working to acquire from Vodafone the remaining 45 percent of Verizon Wireless?. Vodafone reacted cautiously, saying its ?position has not changed?.

Verizon declined to say whether active talks with Vodafone were under way. ?This a logical and predictable move by AT&T,? said Peter Thonis of Verizon. ?This kind of consolidation of assets makes sense, providing new leverage and capabilities as Verizon and AT&T compete against cable.?

Arun Sarin, chief executive, has recently signalled the board would consider selling stake in Verizon Wireless although he insisted last month he thought it was a ?good idea? to stay in the US.

Mr Sarin has come under pressure from shareholders, unhappy about the group?s share price performance and overall strategy, to dispose of the stake in Verizon Wireless because Vodafone has no clear path to control.

Instead, Vodafone is looking at exiting the troubled Japanese market, another bone of contention for investors, after confirming at the end of last week it was in talks with Softbank to sell at least a controlling stake in the Japanese subsidiary.