AT&T Acquires BellSouth: Is One Company Too Big for Broadband?

AT&T just announced it's buying BellSouth for $67 billion in stock. If regulators approve, the combined company will be the largest telecommunications provider in the United States by a wide margin — serving roughly 70 million access lines, controlling DSL broadband in 22 states, and holding full ownership of Cingular Wireless, the country's biggest wireless carrier.

That's a staggering concentration of power over how Americans connect to the internet.

What the Deal Means for DSL Customers

Right now, BellSouth provides DSL to about 3.2 million customers across nine southeastern states — Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee. AT&T (which absorbed SBC Communications last year) already serves around 7.7 million DSL subscribers in 13 states, mostly in the Midwest, Southwest, and West.

Combined, that's nearly 11 million DSL customers under one roof. No other company comes close. Verizon, the second-largest DSL provider, serves about 6.1 million broadband subscribers. The new AT&T will control roughly a third of all DSL connections in the country.

For BellSouth DSL customers wondering what changes, the honest answer is: probably not much immediately. AT&T has said it will maintain service levels and pricing. The integration will take months, possibly years. But the long-term concern isn't about today's pricing — it's about what happens when one company dominates DSL service across most of the South and significant portions of the rest of the country.

The Cingular Factor

Here's an angle that's getting less attention than it deserves. AT&T already co-owns Cingular Wireless with BellSouth in a 60/40 split. This merger gives AT&T 100% ownership of Cingular and its 54 million wireless subscribers.

Why does that matter for broadband? Because wireless internet is growing fast. Cingular is rolling out high-speed data services that many consumers use as a supplement to — or even replacement for — home broadband. AT&T will now control both the DSL pipe into your house and the wireless data connection on your phone. That's a level of control over internet access that should make anyone nervous.

Net Neutrality Conditions

The FCC has signaled that approval won't come without conditions, and net neutrality is at the top of the list. Consumer groups and tech companies have pushed hard for the FCC to require the merged AT&T to abide by net neutrality principles — meaning the company couldn't block or degrade internet traffic from competing services.

This is particularly relevant because AT&T CEO Edward Whitacre made waves last year when he suggested that companies like Google and Yahoo shouldn't get to "use these pipes for free." The implication was clear: AT&T might charge content providers for priority access to its network, creating a two-tiered internet where companies that pay get faster delivery and everyone else gets stuck in the slow lane.

If the FCC imposes net neutrality conditions on the merger, it would be a significant win for open internet advocates. But conditions attached to a merger are temporary — they typically expire after a few years. A permanent solution would require actual legislation or a broader FCC rulemaking.

The Bigger Monopoly Question

Let's step back from the specifics. The telecommunications industry has spent the last decade consolidating after the breakup of the original AT&T (Ma Bell) in 1984. SBC bought Ameritech, then Pacific Telesis, then AT&T itself — keeping the AT&T name. Now it's absorbing BellSouth. Of the seven original Baby Bells, four will now be part of a single company.

The 1984 breakup happened because the government determined that one company controlling the phone network was bad for consumers and bad for competition. Twenty-two years later, we're reassembling the pieces.

The argument in favor of consolidation is that larger companies can invest more in network upgrades and deliver better service through economies of scale. AT&T says it needs size to compete with cable companies like Comcast and Time Warner, which offer their own broadband products and have been eating into DSL market share.

There's some truth to that. Cable broadband is faster than DSL in most markets, and DSL providers need to invest heavily to remain competitive. A larger AT&T might be better positioned to fund fiber-to-the-node upgrades and other technologies that could close the speed gap.

But the history of telecom monopolies doesn't inspire confidence. When one company controls the market, prices go up and innovation slows down. That's why Ma Bell was broken up in the first place.

What to Watch

Three things to pay attention to as this deal moves through regulatory review:

Net neutrality conditions. How strong will they be, and how long will they last? Temporary conditions are better than nothing, but they don't solve the underlying problem.

DSL pricing in BellSouth territory. AT&T has been aggressive with DSL pricing — its basic plan runs $14.95 per month in many markets. Will those prices extend to BellSouth customers, or will rates creep up once the merger closes and competitive pressure fades?

Wireless data bundling. Watch for AT&T to start bundling wireless data with home DSL. That could be good for consumers in the short term — lower combined prices — but it also makes it harder to switch providers, which reduces competition over time.

This merger will probably get approved. The political will to block a deal this size simply isn't there, especially from a Republican-led FCC that has generally favored deregulation. The question is what conditions get attached and whether they'll be strong enough to prevent the new AT&T from using its enormous market power to squeeze competitors and customers alike.

For the 11 million households that will depend on AT&T for their DSL connection, the stakes are real. Competition is the best regulator, and this deal means there's going to be less of it.