Who bought AT&T out?
In a merger costing more than $16 billion, SBC Communications acquired AT&T Corp. in 2005. Originally known as Southwestern Bell, SBC was among the "Baby Bells" established after the 1984 divestment of AT&T, the local phone provider.
The history that led to the deal
Following the 1984 divestiture that established the seven “Baby Bell” regional telephone companies and one long-distance company out of the old AT&T Internet, several changes occurred in the telecom industry in the next two decades. As regulations were relaxed, the Baby Bells began to move outside of their regions of origin to diversify.
In the mid-1990s, SBC began to purchase other companies to expand its telecommunications operations. Pacific Telesis it bought in 1997 and it was composed of local phone companies in California and Nevada. It bought fellow Baby Bell Ameritech in 1998 which helped to spread SBC into mid-western states including Illinois, Michigan, Ohio &Wisconsin. At the same time, other mergers between the Baby Bells were also taking place, such as NYNEX merging with Bell Atlantic to become Verizon Communications in 2000.
However since the Telecommunications Act of 1996 enabled the Baby Bells and AT&T to compete in both the local and long-distance sectors, AT&T Corp. itself tried to re-enter the local phone industry. The business was virtually a flop, however, and in 2004 AT&T said it would leave the consumer long-distance phone market to focus on data and IP communications. Notably, AT&T Corp. had declining net profit and income at the time the examined event occurred.
SBC in a bid to consolidate market control takes a step forward to Acquire AT&T
SBC had been eyeing the possibility of attempting to acquire its historic parent, AT&T Corp., during the early 2000s when AT&T was struggling. SBC believed that AT&T with its brand image and large enterprise customers would complement the strategy to form a truly integrated telecom company across the nation and also allow SBC to move away from just being a local and wireless player.
It was in January 2005 when SBC came out with its official bid to acquire AT&T for $16 billion. The intended deal received political and regulatory attention but it was passed.
In the later part of 2005 when the acquisition deal was complete, SBC assumed the AT&T brand to leverage the positive brand image. That is, SBC in effect bought out AT&T and adopted the famous name for its use. SBC changed its image and marketed itself as “the new AT&T.”
Why SBC Wanted to Buy AT&T?
SBC Communications was motivated to acquire AT&T in 2005 for a few fundamental factors.
1. Expand National Geographic Scope - SBC had already consolidated itself with several other “Baby Bells ” and already had a good base from the southwest to the mid-western states. AT&T would expand that footprint to cover the entire nation coast to coast.
2. Enterprise Customers – AT&T had a large number of big business and enterprise clients. These were very attractive customers to SBC as most of the enterprise service contracts would be large and long-term contractual businesses.
3. Brand Reputation - Even if the original telephone monopoly was AT&T, the name had a lot of influence and recognition in the market even after the market was opened up to competition. SBC wanted to leverage these branding assets At SBC, they saw an opportunity to leverage these branding assets.
4. Better Positioning against Competitors – Verizon had already acquired several Baby Bells while SBC had to do a similar exercise to be on par. The acquisition of AT&T meant that SBC had similar national access and assets to those of Verizon.
The merger made AT&T the largest telecommunications company in America in terms of total sales at the time of the merger. The new AT&T had over $70 billion in annual revenue, and significant distribution facilities, and became a leader across all telecom sub-segments that include wireless, broadband/media content, and telephone landline services.
The AT&T brand name and identity remained relatively unscathed from this merger thanks to the rich heritage and brand association. SBC was not much recognized nationally, so it was useful to keep the AT&T brand dominant as well. This new AT&T remains one of the biggest communications and media companies to this date.
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