Telecom Merger Tosses Rivals Together

Posted February 4, 2005 at 5:42pm

For telecommunications lobbyists on both sides of the $16 billion merger, the marriage of SBC Communications and AT&T presents an unusually dicey problem: How do you lobby against the company you are trying to join?

As in-house lobbyists and outside consultants blanket Capitol Hill to gain support for the merger, they must also begin to consider how they will position themselves for the impending rewrite of the 1996 Telecommunications Act.

That law was the product of a titanic clash between Baby Bell regional phone companies, including SBC, and long-distance carriers, such as AT&T. Its update could once again pit the two companies against each other.

The deal comes at a time of great flux — and great nervousness — in the telecommunications industry. MCI, Sprint, Verizon and BellSouth all declined to comment for this story.

Spokepersons for SBC and AT&T declined to discuss their lobbying strategies in depth, both emphasizing that the merger is still a proposal and that they would continue to work for their respective shareholders.

A dozen telecom lobbyists agreed to talk, but only on the condition of anonymity.

They agreed on only two things: that their industry is entering a period of uncertainty in government relations, and that SBC and AT&T lobbyists will be walking a tightrope for the next year.

“We don’t really know yet how this is going to work,” one telecom lobbyist said. “AT&T has to defend its own corporate interest until they cease to be their own. That said, to the extent they would normally be poking SBC in the eye, I don’t think they’ll do that.”

Similarly, the lobbyist added, SBC will be trying to reconcile two potentially conflicting agendas.

“If they hurt AT&T, the thing they paid $16 billion for won’t be worth as much,” the lobbyist said.

To be sure, AT&T is not the powerhouse company it was eight years ago. Its long-distance business has withered as customers switch to using wireless phones or discount packages of local, long-distance and Internet service from other companies. Last year, it lost its below-cost access to local phone networks, prompting it to largely pull out of the consumer market.

Many lobbyists said that since AT&T is no longer stiff competition for SBC, it should not be awkward for the companies to merge even as the telecom laws are redrafted.

But the long history of bitter feuding has left an animus between their Washington shops, and more substantive points of contention remain.

The companies are already fighting over whether AT&T should pay fees on prepaid calling-card phone calls made by U.S. soldiers overseas. In addition, AT&T could push to keep discounted rates that regional companies currently have to offer on their lines for bundled local and long-distance service to small businesses.

People familiar with SBC’s Washington office said they don’t expect the company to soften its position on those issues. They said that since AT&T is being acquired, AT&T lobbyists will be asking SBC for a job if the deal is approved.

For now, both sides have their work cut out for them as they try to steer the deal through approval by state public utility commissions, the Justice Department and the FCC, while making sure no Members of Congress howl about the 13,000 job losses the merger is expected provoke.

Lobbyists said they anticipate teams on both sides to remain intact for the year to 18 months that the process is expected to take.

But when the deal is over, they said, not everyone will survive — and at that point, AT&T lobbyists are at a distinct disadvantage.

“If you’re the acquired entity, as a general rule, your chances aren’t that good,” said one lobbyist.

AT&T, long a force to be reckoned with in Washington, still has a formidable array of about 30 outside lobbying firms. Those firms may be pulling their punches on behalf of AT&T as they look ahead to pitching their business to SBC.

“The smartest maneuver right now is to do nothing — keep your nose to the grindstone,” an AT&T lobbyist said. “Over the course of the year, [AT&T lobbyists] will be trying to ingratiate themselves with SBC people.”

For AT&T’s in-house staff of about a dozen, SBC’s recent mergers with PacTel and Ameritech could offer a reassuring precedent. SBC invited all in-house lobbyists with both companies to join its team, according to a lobbyist close to SBC.

Both acquired companies’ lobbyists had strong ties to Members of Congress from their regions, and SBC was eager to pick up those relationships.

In the case of AT&T, SBC will undoubtedly benefit from the company’s warm history with Sen. Ted Stevens (R-Alaska), whose state has benefited from AT&T’s significant investment. Stevens recently claimed the gavel of the Senate Commerce, Science and Transportation Committee, and he has signaled his intention to craft any new telecom laws at the full committee level.

Even if they end up snagging a job at the new company, however, many AT&T lobbyists could find the switch hard to make. The rivalry between the two companies has been so pitched, one lobbyist said, that AT&T’s representatives might have trouble adopting SBC’s positions with a straight face, considering that they’ve spent their careers arguing against those very stances.

“It’s almost like being reprogrammed,” one lobbyist said.

SBC favors working through its in-house staff and evaluated the outside contracts for PacTel and Ameritech on a case-by-case basis, according to the lobbyists close to those deals. With about 20 outside firms, the company has had less outside help than AT&T, and the company isn’t considered likely to invite AT&T’s entire roster aboard if the merger is approved.

“I’m confident their budget would not accommodate keeping all of them, even if they desperately wanted to,” he said.

Another recent acquisition — Cingular Wireless swallowing AT&T’s wireless spinoff — also portends a grim fate for AT&T’s outside consultants. Cingular Wireless has dropped all of AT&T Wireless’ outside firms, several lobbyists said.

Meanwhile, it is unclear what effect the merger will have on other facets of telecom policy as Members reopen the debate over industry laws. In part, that’s because the ground is still shifting beneath the industry’s feet. News of the merger touched off a scramble among other companies to position themselves, possibly by negotiating their own mergers.

“There’s instability everyplace, and it’s upsetting a delicate balance,” one lobbyist said. “Everybody is trying to be anticipatory, and that engenders a lot of careful gaming about ‘what’s best for me today.’”

Several lobbyists conceded, for example, that they did not know where the SBC deal leaves the U.S. Telecom Association. That group, which includes three Bells — Verizon, SBC and BellSouth — last year launched a multimillion-dollar campaign to end discounted network rules.

Some lobbyists said the merger won’t affect the group, while others said it spelled doom. The USTA, whose revenues exceeded $16 million in 2002, declined to comment.

One thing about the deal is certain: If approved, it would create a fundraising juggernaut.

Last year, SBC’s PAC was the most generous corporate donor to Democrats, giving them $623,183, and the third most generous to Republicans, giving $1,134,933, according to PoliticalMoneyLine.

AT&T’s PAC ranked 33rd among those giving to Democrats, contributing $194,000. They gave $179,500 to Republicans, putting them at 108th on that list.

All told, the two companies have combined in the past four years to give $3,977,355 to federal candidates in both parties.