WorldCom Inc.’s surprise bid to acquire MCI Communications Corp. has touched off speculation of other possible mergers, including widely reported talks between AT&T Corp. and GTE Corp.
Neither GTE nor AT&T would comment on the speculation, but several analysts said the two companies have at least been in contact about the possibility of a merger, and one analyst said AT&T has been in contact with as many as six possible partners.
“The question is, if they align with someone, will they be able to get a new CEO?” said Chris Landes, a consultant with TeleChoice, a telecommunications industry consulting firm. “In a sense, it would allow Bob Allen to hit a home run. I think Allen has been looking to get AT&T out of this funk and into the local arena and into the multimedia arena.
“That’s one of the things that has been on their plate,” he continued. “I don’t believe their shareholders are going to stand for them to stay put.”
A combined WorldCom-MCI would perceivably put plenty of pressure on AT&T to partner with a company that could bolster its business either on a global scale or domestically.
“There’s a feeling that if you’re going to be a major player, you need to get big and be in a global alliance,” said Danny Adams, a partner with Kelley Drye & Warren L.L.P. “We’ve been seeing that developing over the years. BT buying 20 percent of MCI and then trying to buy all of it. France Telecom Group and Deutsche Telekom AG each buying 20 percent of Sprint. AT&T’s alliance with a bunch of European companies-Telefonica in Spain and several others.”
While some analysts have speculated that AT&T could try to partner with a global company such as Cable & Wireless plc, a domestic combination of GTE and AT&T could be a good strategic move.
“It makes sense to have both the long-distance and the local expertise merged into one company, and obviously AT&T and GTE are both very large players that each of those areas respect,” said Adams.
“Cable & Wireless simply gives them a lot of global presence, but it doesn’t help them with the local problem,” said TeleChoice’s Landes. “It doesn’t help them as a long-distance carrier and I think that’s going to be critical domestically.”
But Adams said AT&T needs both an international connection and local telephone expertise.
“The fear is that AT&T is unlikely to be allowed by the antitrust authorities to buy one of the old Bell companies back,” he said.
One problem that a combined AT&T and GTE would have to face is their overlap in several cellular markets, including a number of metropolitan statistical areas in California, Florida and Texas.
Sprint Corp. also could be looking to partner with a local service provider, but analysts have speculated the company most likely will leverage its alliance with Deutsche Telekom AG and France Telecom Group.
Teleport Communications, a competitive local exchange carrier, seems to be the tastiest morsel available for purchase. ICG Communications,
another CLEC, also has been mentioned as a possible acquisition.
One thing analysts tend to agree on is that this is neither the beginning nor the end of such merger-and-acquisition activity.
“The whole merger binge has been ongoing for quite some time, particularly in the long-distance part of the market,” said Adams. “WorldCom, for example, was put together out of 40 or so mergers over the last five or six years.”
Not all analysts, however, agree that the WorldCom bid for MCI will cause a flurry of M&A activity.
J.P. Mark, senior analyst with Rauscher Pierce, said rather than triggering actual M&A activity, the WorldCom offer to MCI has triggered only speculation of possible combinations.
