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AT&T deal dials up big brand questions

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After SBC Communications announced Jan. 31 that it would buy AT&T Corp. for $16 billion, the initial conjecture made the rounds that the grand old brand would eventually be disconnected in favor of SBC.

Indeed, journalists everywhere began composing AT&T's obituary. But many telecommunications and branding experts say SBC should think long and hard about hanging up on the AT&T name and its brand equity, particularly for lucrative business customers.

At the same time, both the AT&T and SBC names have a downside. "It's a really tough problem," said Laura Ries, president of branding consultancy Ries & Ries. "SBC is an extremely poor name. It's a set of initials that has no meaning, little recognition and little brand power. Of course, AT&T is one of the best initial brands ever because it's so widely known. But it has taken a clear beating."

Edward A. Whitacre, who will be chairman-CEO of the new company, appears to have final say in choosing a name for the combined company. His options are clear. He can keep the SBC name, using AT&T as a subbrand. He can combine the names: SBC-AT&T. He can choose an entirely new name, which most observers dismiss as too expensive. Or he can dump SBC for AT&T.

"The first thing you do is identify what's the objective here," advised Hayes Roth, VP-worldwide marketing and business development at branding consultancy Landor Associates. "In this case, SBC seems to be in the driver's seat [in terms of the decision]."

A key objective in this acquisition appears to be driven by b-to-b marketing concerns. With its local and long distance phone service under price pressure, with wireless eating away at its base, and with a looming threat from cable providers, SBC hopes to limit its dependence on the local phone business.

The deal for AT&T would allow SBC to gain traction in the business arena and to control AT&T's global Internet protocol network. Industry observers such as Robert Rosenberg, president of telecom analyst Insight Research Corp., say that this network will enable the combined company to be a leader in transmitting digitized information and media across the globe.

In the press release announcing the deal, SBC's Whitacre explained that the IP network was a centerpiece in the AT&T acquisition.

"The communications industry is undergoing a profound transformation as it transitions to unified, IP-based networks capable of delivering a host of integrated services," he said.

"SBC is getting a tremendous bargain in owning the network, the brand and the business franchise that AT&T has," said Karl Barnhart, managing director of branding consultancy CoreBrand. "SBC's approach is to become the world's network company."

And if AT&T's IP network is a focus of the deal, Barnhart added, "You can make a really good case for calling the whole thing AT&T. ...They're crazy not to leverage that brand name."

The problem is that AT&T is largely perceived as a brand in decline. It failed in its attempt to get into the cable business. It sold off AT&T Wireless and is abandoning its consumer telephone business. Last year, it was dropped from the Dow Jones Industrials.

Between 2001 and 2002, branding consutancy Interbrand calculated that AT&T's brand value declined by 30%. CoreBrand calculates that AT&T's brand value now stands at $2.4 billion, down from $8.45 billion in 2002.

On the other hand, SBC, with a focus on DSL, has a brand that appears forward-looking to some observers. "It just seems that SBC is the brand to watch, a brand on the move," Roth said. "What I hope they don't do is SBC-AT&T. I think that's not a solution, that's a compromise, and I would frankly be surprised if they did that. But that doesn't mean that AT&T has to go away."

Some observers believe AT&T will remain at least as a subbrand aimed at businesses or as an international unit. "I would be extremely surprised if the AT&T name were not retained [in some way]," Rosenberg said.

SBC started out as Southwestern Bell, one of seven so-called Baby Bells created by the 1984 breakup of AT&T. It took the name SBC Communications in 1994. Since then, it has has acquired two other Baby Bells, Pacific Telesis and Ameritech. Through its Cingular Wireless joint venture, it acquired AT&T Wireless. And now the San Antonio, Texas-based company is attempting to swallow its former parent, AT&T.

In short, SBC appears close to reconstituting the AT&T that the government broke up as a monopoly two decades ago. So why not take the next logical step and call the company AT&T?

Whitacre's comment on the AT&T brand is hard to decipher. "We value the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world, and it will certainly be part of the new company's future," he said.

Is that just a polite nod to a grand old brand? Or is Whitacre setting the stage to drop SBC for AT&T? Those questions probably won't be answered until the first half of 2006 when the deal is slated to close. 

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