March 8, 2006 12:00 PM PST

Will bigger AT&T spur a broadband TV price war?

The proposed $67 billion merger between AT&T and BellSouth could help ignite a pricing war between telephone companies and cable operators, but experts say that price cuts, if they happen at all, are a long way off.

The environment in the communications market is changing, and cable companies, which have long resisted dropping prices, could eventually be forced to make price cuts to compete, say experts.

"You have to think that at some point the cable operators are going to be forced to do something," said Jim Penhune, an analyst with Strategies Analytics. "But then again I said the same thing last year when the phone companies cut DSL pricing. It's hard to know where the breaking point is and how long it will take to get there."

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What's new:
Should its proposed merger with BellSouth be approved, a bigger AT&T could start a price war, pressuring cable companies to lower fees for broadband service packages that include phone, Internet and TV.

Bottom line:
With the AT&T/BellSouth merger at least a year away, and because rollouts of the phone company's TV-ready broadband networks are moving slowly, a pricing battle with cable companies could be a long way off.

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AT&T's merger with BellSouth won't create a new competitor, but it will make an already aggressive AT&T even bigger. With an expanded, 22-state territory, AT&T will have even more opportunity to pitch its $12.99-per-month service against the offerings of cable operators. Factor in AT&T's move to sell TV service throughout its territory, and cable companies, at least in some parts of the country, may finally be forced to cut prices.

But consumers shouldn't expect a price war to break out overnight. Not only will the AT&T/BellSouth merger take at least a year to be approved by regulators, but how much competitive pressure AT&T exerts depends on how quickly it can compete with cable on delivery of TV service. And progress there has been slow.

In general, phone companies--namely AT&T and Verizon Communications--have adopted an aggressive strategy when it comes to competing with cable. They have drastically dropped prices on broadband service in the hope that customers getting a taste of broadband at a low price will eventually order more services from them.

Last June, AT&T (then SBC Communications) slashed prices to $14.95 for the first year of service. In February it lowered its price again, to $12.99. Verizon also offers a new tier of service, which includes 768kbps downloads, for $14.95 per month.

The strategy has worked. Phone companies are closing the gap between DSL subscribers and cable subscribers. Last year, for the first time, phone companies signed up more subscribers than cable operators did, according to the Leichtman Research Group. Phone companies scored 5.2 million new subscribers for a total of 18.5 million customers, while cable signed up 4.4 million new subscribers for a total of 24.3 million.

So far cable companies have resisted cutting prices. Instead they've responded by raising download and upload speeds and adding more features to their service. The straw that could finally break the cable companies' backs could be television.

AT&T and Verizon are both in the process of upgrading their networks so

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cable company, AT&T Corp., merger, BellSouth Corp., subscriber

4 comments

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My Cable bill is outrageous!
I hope price cuts come sooner rather than later. I'm miffed that
COMCAST is sticking it to me. Sheesh, $100 a month for Internet
and BASIC cable!?!
Posted by technewsjunkie (1265 comments )
Reply Link Flag
My Cable Bill is Outrageous too!
Our cable company is Insight, and while the service is reliable, the cost is very high,$100 a month for basic and internet service. My biggest complaint is that with all the channels available, there are only a handful worth watching. Most people that switch from dial-up would never go back, and you can bet the cable companies know that!
Posted by terminalfrost (1 comment )
Link Flag
Fat Chance!
Years ago AT&T was broken up by the Federal government because there was only one and only Phone company. There were many little Phone Front companies that all they did was local maintainence, and collected money for Ma Bell. getting a cut just for employee pay to mind the store. Sprint and other were trying to compete becasue they simply weren't allowed.

Now AT&T wants witha Republican officialed Federal government's blessing owning every telephone in america again.

They only thing it will do is kill off all competition, and remove any inovation what-so-ever.

If anything companies like AT&T and Microsoft should be broken into a thousand little pieces. That way is a small fish comes up with something wonderful it can come on the market and have just as much chance of Making it as the next guy. Big with in reason is okay but when you get to the 800 pound Gorilla size like AT&T and Microsoft, then no one else can hurt you. You have absolute power to screw the customers as hard as you please.
Posted by pjonesCET (42 comments )
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I can't forsee a 'price war'...
Typically price wars come with the ability to choose. Last I checked, most places don't have a choice so people will pay what they're told to with out option. I'm currently paying $109/month with Charter for Digital Cable and Internet. Though I'd be willing to pay a little more for Comcast. I had Comcast in the past and the On Demand features blow Charter out of the water. I had 7MB DL/768UL with Comcast. Now with Charter I have 2MB DL/256 UL and it's dreadful with XBOX Live and PC Gaming.
Posted by JoJo Pumpkin (18 comments )
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