In 1997, when rumors flew that regional phone giant SBC Communications and AT&T might agree to a $50 billion merger, then-Federal Communications...
WASHINGTON — In 1997, when rumors flew that regional phone giant SBC Communications and AT&T might agree to a $50 billion merger, then-Federal Communications Commission Chairman Reed Hundt called such a deal “unthinkable.”
“Unthinkable” because just a little more than a dozen years earlier, the two were one in the same, part of a sprawling AT&T telephone monopoly that a federal court ruled had become too dominant and needed to be broken up.
The two companies are again in advanced talks to merge, sources familiar with the negotiations said yesterday. This time, analysts and others say the potential for such a deal is being greeted much differently.
AT&T is no longer the telecommunications Goliath a judge split into one long-distance giant and several smaller regional phone companies. It could sell for as little as $15 billion because the local phone companies, which became SBC, Verizon Communications, BellSouth and Qwest Communications International, are now every bit the rivals of their parent — mostly because of a government decision in 1996 to encourage more competition in the telephone industry.
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Not only did the change in regulations pit local phone companies against long-distance firms, but now cable companies offer phone service, as do cellphone companies.
Cheaper technologies such as Internet phone service are making inroads into the mainstream market, whittling even more away from the traditional local phone business.
AT&T has been increasingly hobbled by the resulting price war and sold its cellphone business and cable-television empire.
It announced last year it would no longer market long-distance service to residential customers, choosing to focus on business customers.
Analysts have predicted it was only a matter of time before it put itself up for sale.
Negotiations with SBC, first reported yesterday by The New York Times and Wall Street Journal, started several weeks ago and are “far along,” sources familiar with the talks said. San Antonio-based SBC “continues to consider other options,” and could still negotiate with AT&T’s rival, MCI.
AT&T, meanwhile, could solicit counteroffers from other regional companies such as Verizon or BellSouth, although sources suggested those combinations are not likely.
AT&T and SBC declined comment.
Despite their changing circumstances, any deal between SBC and AT&T is likely to be scrutinized closely by antitrust regulators, said one source close to the FCC who spoke on the condition of anonymity.
The key concern for regulators could be the overlap of the two companies’ business and residential customers in SBC’s territory.
SBC is the nation’s second-largest telecommunications company, after Verizon. It is the biggest local phone company in 13 states, including California, Texas and Illinois.
AT&T remains the nation’s largest long-distance company, with customers in all 50 states. Because of the national scope of the combined businesses, antitrust approval could require a difficult and lengthy review, the source said.
Some consumer activists said they were wary of the deal.
“It is a remonopolization of the phone business,” which means fewer new services and higher prices for consumers, said Mark Cooper, research director for the Consumer Federation of America.
SBC has 36 million residential customers, but its business overall is eroding because of competition from wireless, cable-phone service, and other newer technologies.
It is trying to sell more of its local and long-distance services to businesses, AT&T’s core strength these days, by offering Internet phone service and packages of wireless and video services.
SBC is negotiating to retain the AT&T brand, a source said.