NEW YORK-Barely finished with its acquisition of Pacific Telesis Group, SBC Communications Corp. is widely rumored to be exploring merger possibilities with AT&T Corp.
Ruthlyn Newell, a spokesman for AT&T, headquartered in New York, declined to comment, citing company policy on “rumors or speculation about mergers, acquisitions, divestitures or other business combinations.” Larry Solomon, a spokesman for SBC, headquartered in San Antonio, Texas, also offered no comment.
While it is “entirely possible” that the two carriers have held merger discussions, “we ascribe a low probability of ultimate approval because of the implications for competition,” said Dan Reingold, a securities analyst for Merrill Lynch & Co., New York.
Thirteen years after AT&T’s breakup, the $50-billion-plus reunification of Ma Bell with a combination of two of its Baby Bell offspring would be far and away the largest merger ever. The union, if it happens, would create the first joining of AT&T and any regional Bell operating company since they were formed in the 1984 court-ordered divestiture of AT&T.
AT&T is the nation’s largest cellular carrier, with 7.2 million subscribers. SBC is ranked fourth, according to RCR’s Top 20, with 4.4 million subscribers.
“This is like putting Humpty Dumpty back together again,” said Gary Miller, president of Aragon Consulting Group, St. Louis.
The new entity would have $80 billion in annual revenues and 230,000 employees. It also would have 60 percent of the $80 billion long-distance market and dominate local phone and wireless services throughout the Southwest and California. SBC owns Southwestern Bell and Pacific Telesis, operating in Arkansas, California, Kansas, Missouri, Nevada, Oklahoma and Texas.
An AT&T/SBC merger also would radically reshape a telecommunications landscape, which already has seen a number of multibillion-dollar combinations since the 1996 overhaul of the nation’s telecommunications law.
The biggest deals include Bell Atlantic Corp.’s agreement last year to combine with Nynex Corp. in a merger of regional Bell operating companies valued at nearly $23 billion, and British Telecommunications plc’s proposal last fall to take over MCI Communications Corp., the second largest U.S. long-distance phone company, for $20 billion. And late last year, WorldCom Inc., the nation’s fourth largest long-distance telephone company, agreed to acquire MFS Communications Co., which sells local phone service to businesses, for $12 billion.
“The MCI-British Telecom merger was different because BT previously didn’t do much business in any [United States] market,” said Philip Wohl, equity research group analyst for Standard & Poor’s Corp., New York. “And SBC’s own recent acquisition of Pacific Telesis was different because both companies are just regional providers.”
AT&T also has made merger inquiries of other telecommunications companies, including GTE Corp. and two other Baby Bells, Ameritech Corp. and BellSouth Corp., according to unnamed sources quoted by the Associated Press. But talks with SBC have advanced further, with the parties already discussing how to overcome numerous and considerable hurdles to the deal. These include whether regulators will approve the merger, how to structure it financially, who will manage the new entity and where it will be headquartered.
David Roddy, chief telecommunications economist at Deloitte & Touche Consulting Group, Atlanta, said AT&T and SBC would have to build a strong case that they’re not shutting out competitors. Since their businesses overlap in many markets, the two companies could be forced to divest some operations.
“[A deal] can be done, but it won’t be easy and will take some time,” Roddy said.
The 1996 telecommunications deregulation law, which supersedes the rules governing the AT&T divestiture, freed AT&T and the RBOCs to expand beyond their core businesses. But it also would require SBC to demonstrate its local phone markets are open to competition before it competes in long-distance service.
Long-distance telephone companies like AT&T have been slow to enter local phone markets in the year since the new federal law went into effect. Earlier this year, AT&T announced it is working on a fixed wireless technology that would allow it to offer local phone service by bypassing the wired network with wireless local loop in municipalities around the nation.
AT&T’s pursuit of a major merger partner marks a shift for the nation’s largest long-distance company, which recently has favored strategic alliances over mergers for entering new markets, like overseas phone service.
“The merger makes sense for both companies, but goes against telecommunications legislation focused on opening up markets,” said Wohl of Standard & Poor’s.
