Having convinced each other it was a good deal, SBC Communications and AT&T spent yesterday selling their merger to investors and regulators...

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DALLAS — Having convinced each other it was a good deal, SBC Communications and AT&T spent yesterday selling their merger to investors and regulators.

SBC told investors its $16 billion purchase of AT&T would bring the combined company $2 billion a year in “synergies” by 2008. To regulators, it said the merger would drive innovation and save an American icon.

In this case, “synergies” probably means many layoffs, although SBC won’t offer details until today.

Most of the $2 billion will come from cost savings, while only $100 million to $200 million annually would come from extra revenues.

AT&T personnel will probably take the brunt of the job reductions, said Danny Briere, an industry consultant. “SBC bought someone that was declining. I would imagine a lot of AT&T people have their résumés on the street today.”

For AT&T and SBC employees, though, it will be just the latest squeeze. SBC’s Dec. 31 payroll of 162,700 is down from 220,090 employees at the end of 2000. AT&T, which has divested its wireless and cable operations, dropped from 166,000 to 47,000 in the same time period.


Business segments: Long distance, Internet, and voice and data services.

Headquarters: Bedminster, N.J.

Size: $30.5 billion in revenue in 2004.

U.S. territory: National.

Financials: For all of 2004, AT&T reported a net loss of $6.11 billion, or $7.68 a share, including $12.8 billion in charges for the asset writedowns and other restructuring moves.

Employees: 61,600 worldwide as of 2003.


Business segments: Voice, data telecommunications products and services provided by SBC companies for consumers and businesses include local, long distance, DSL, wireless, data networks and satellite television.

Headquarters: San Antonio.

Size: Currently the nation’s second-largest local phone service provider.

U.S. territory: Thirteen states, including Texas, California, Nevada, Michigan, Ohio, Illinois and Connecticut.

Financials: For all of 2004, SBC reported earnings of $5.9 billion, or $1.79 a share, on revenue of $40.8 billion.

Employees: 167,000 worldwide.

Source: Companies’ figures

“But both companies for the last five years have been trimming costs, trimming costs, trimming costs,” said Robert Atkinson, research director at Columbia University’s Institute for Tele-Information.

“It makes you wonder how much fat is left in either organization.”

SBC must be careful in how it frames further cuts.

The Communications Workers of America, the largest union at both companies, welcomed the deal and said the union would support it before regulators if there are assurances that executives “are committed to growing the business, providing quality and universal customer services, and to creating well-paying jobs.”

SBC’s strategy in previous mergers has been very hands-on. Just months after its deals close, many top executives of the acquired company leave.

AT&T Chairman and Chief Executive David Dorman, then the head of Pacific Telesis, left shortly after SBC took over the California phone company.

Dorman, who will be president of the new SBC, and SBC Chairman and CEO Ed Whitacre Jr. battled publicly over telecommunications issues in recent years. During a news conference yesterday, both said there were no lingering problems.

David Dorman, AT&T chief executive

“We’ll get along just fine,” said Whitacre, who will remain in his current post. Dorman said: “Ed and I have remained friends.”

Cost cutting is another corporate tool SBC has honed, sometimes to excess. After it bought Chicago-based Ameritech in 1999, the Midwestern company suffered several years of poor customer service, prompting protests from consumers and regulators.

SBC has said those problems largely stemmed from an early-retirement plan offered by the previous management. But regulators and consumer advocates said SBC shared much of the blame for not reacting swiftly and by cutting costs too much.

Ed Whitacre, CEO of SBC

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The companies’ common lineage should help smooth the process, Atkinson said. “The old Bell System is still in the DNA of AT&T and SBC and all the Bells.”

SBC said it expects shareholders and regulators to approve in the first half of 2006. Many experts expect federal regulators to sign off on the deal.

Federal Communications Commission Chairman Michael Powell has said he is open to considering the SBC-AT&T merger, a prospect one predecessor in 1997 deemed “unthinkable.” And the Justice Department has been open to telecom mergers.

But Powell is set to depart in March. And the FCC and the Justice Department aren’t the only people SBC has to please.

The deal will be scrutinized by as many as 28 states. Many of those will be more attuned to the competitive impact because they hear from more consumers than do federal policy-makers.

“Review of the deal will be significantly more rigorous at the state level and by state attorneys general,” said Jessica Zufolo, an analyst at Medley Global Advisors in Washington.

Also weighing in will be key congressional leaders and committees. The House and Senate commerce and judiciary committees oversee telecommunications and antitrust respectively and will probably have hearings.

AT&T stockholders will get about 0.78 of a share of SBC stock for every share of AT&T stock they hold. The stock portion of the deal is worth about $14.8 billion, based on 797 million shares outstanding of AT&T stock and SBC’s closing price yesterday.

In addition, each share will get a $1.30 one-time dividend, valued in total at $1.04 billion, and SBC is assuming $6 billion in AT&T debt.

AT&T shares dropped 52 cents to close at $19.19 yesterday. SBC rose 14 cents to $23.76.