|Analysts expect Cingular Wireless will be renamed AT&T Wireless, and that the merged company will have to rebrand in BellSouth’s markets.
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AT&T said it is acquiring BellSouth, its partner in Cingular Wireless, to create a new market leader with designs on not just telecommunications but also Internet and TV businesses as well. The acquisition in the short term likely will fuel the category’s media spending.
Short-term spending spree
In 2004, the top seven cellphone providers spent $4.7 billion in measured media, according to TNS Media Intelligence. SBC, which acquired AT&T last year, is currently in the midst of an estimated $1 billion rebranding campaign, and spent an estimated $500 million the year before that to eliminate the AT&T Wireless name when Cingular acquired AT&T Wireless. Now analysts expect Cingular Wireless will be renamed AT&T Wireless, and the merged company will have to rebrand in BellSouth’s markets.
But in the long term, after the big rebranding outlays are over, spending in the category -- at $6 billion it's the fourth in the nation behind automotive, retail and media -- may decline. Lauren Rich Fine, an advertising analyst with Merrill Lynch, said AT&T and BellSouth spend about $3 billion combined on advertising, and company executives expect reduced ad expense to be a major source of savings.
“We do not expect a material impact on ad spending in ‘06, as the merger is expected to close in ‘07,” she said. “The two companies expect to move from three brands currently (AT&T, BellSouth and Cingular) to one brand afterwards.”
Newspapers stand to lose
Ms. Fine said newspapers, which received 40% of the two telecom’s combined media spending in 2004, have the most to lose from the merger, along with network and spot TV. Ms. Fine said she believes AT&T’s and Yahoo’s relationship with AT&T and BellSouth would not be impacted by the merger, but she was uncertain of the merger's effect on Google, because BellSouth, as part of its yellow pages operations, is an AdWords reseller.
But the merger’s implications go well beyond media outlays and involve the telecommunications companies' desire to become media players, going head-to-head against cable companies in providing entertainment to the home. AT&T is positioning itself to offer consumers a bundle capable of competing with cable services. Called Project Lightspeed, AT&T has built a Los Angeles-based team of former TV programming executives who are working to develop new video, voice and programming that can be accessed over the Internet. Verizon Wireless also has begun to build out a fiber optic service with many of the same applications called FiOS.
Already, the telecoms aggressively have gained market share against cable companies in the broadband services field by reducing prices on DSL. According to Leichtman Research Group, last year telecom companies used promotional prices as low as $13 a month to garner more broadband subscribers than cable companies. Cable, however, still retains the lead with 24.3 million high-speed Internet subscribers compared with 18.5 million phone-based subscribers.
Yellow Pages shakeup
At the same time, a number of analysts expect a shakeup in the Yellow Pages business. Neal Polachek, senior VP-research and consulting, the Kelsey Group, said AT&T and BellSouth control $6 billion of the $15 billion spent last year on Yellow Pages advertising. He expects AT&T to spin off the Yellow Pages as an independent media company, either by selling it to private equity investors or as an initial public stock offering. The two companies recently purchased yellowpages.com for $100 million. Mr. Poalchek said he expects the merged company to use that brand as Yellow Pages move from paper to the online space.
After the merger, AT&T will be the main local phone service in six of the 10 fastest-growing states: California, Florida, Georgia, Nevada, North Carolina and Texas. Three AT&T states -- California, Florida and Texas -- will account for nearly half of U.S. population growth through 2030, according to Census Bureau data.
Verizon sells service in two of the 10 fastest-growing states, Maryland and Virginia; Qwest offers service in the two other fast-growing states, Arizona and Washington.
AT&T’s agencies include Omnicom Group’s GSD&M, Austin, Texas, and independent Rogers Townsend, St. Louis. BellSouth’s agency is WPP Group's Grey Worldwide, Atlanta; the majority of Initiative Media's buying for BellSouth is handled out of Atlanta, while some is done in New York. SBC spent $979 million in measured media for the first 11 months of 2005, while BellSouth spent $98 million during the same period, according to TNS Media Intelligence.
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Brad Johnson contributed to this report.