The days of Ma Bell's independence are drawing to a close. Two weeks ago, AT&T (NYSE: T ) filed an SEC report paving the way for a write-down of a portion of its $43.8 billion in assets, which, following the company's decision to stop marketing its domestic services, has led to speculation that the company is ripening itself for a takeover.
Candidates for write-off include portions of its $22.8 billion in plant and equipment and some of its $4.8 billion in good will. Competition has eroded profit margins in the long-distance market, reducing the value of AT&T's network, which the company invested so heavily in during the great telecom rush. Archrival MCI (Nasdaq: MCIP ) , also a huge spender during the '90s, set the precedent by writing off almost $80 billion of its assets.
In recent years, AT&T has sold both its cable and wireless businesses, leaving the dwindling residential phone business, business telephone services, and an agreement to resell Sprint's (NYSE: FON ) wireless products. Hardly growth markets.
AT&T might have an ace up its sleeve: its customer lists. AT&T still has more than 30 million residential customers and dominates the business market with a 22% share. Business sales account for about 75% of total revenue, and while margins are slim, the long-term business contracts could hold serious value for an acquirer.
The forces of cable and the forces of telephone are gearing up for war over a powerful (and cheap) technology known as voice over IP (VOIP). VOIP has been around for several years, adopted mainly by techies and ignored by big telecom and cable companies. Not anymore. Thanks to increased adoption of broadband Internet access, VOIP is expected to replace 17 percent of land-based phone lines in North America by 2008, and AT&T already has a toehold in the market.
Verizon (NYSE: VZ ) currently offers VOIP services, as does Qwest (NYSE: Q ) . Cable companies have the advantage, however, owning the broadband lines into people's homes. Rather than try to woo customers from the phone companies, Comcast (Nasdaq: CMCSA ) or Time Warner Cable (NYSE: TWX ) , both of whom will be rolling out VOIP services this year, might prefer to buy residential customers that could be converted from phone to wireless, plus get an entrée into the business market.
If it wants full value for its residential customer list, the pressure is on AT&T to make a deal, especially as its consumer business will likely wither away within three years. The clock is ticking, and a bidding war could begin very soon.
Fool contributor
Chris Mallon
recently dumped his AT&T long distance in favor of two cans and a string. He owns no companies mentioned in this article.
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