SBC in Merger Talks with AT&T?

Rumors have surfaced that SBC Communications Inc. has begun serious, preliminary negotiations to buy AT&T Corp., a move that would further consolidate the rapidly constricting telecommunications sector.

The nation’s largest long-distance carrier, AT&T, of Bedminster, N.J., turned its sights in recent years to the lucrative business market, as pricing pressures in the long-distance consumer market squeezed profit margins. AT&T’s battle for customers was made more difficult by having to compete with MCI Inc., formerly known as WorldCom Inc., which bolstered the appearance of its own profits through years of unprecedented accounting fraud.

SBC, based in San Antonio, is the second largest of the four Regional Bell Operating Companies. It was permitted to enter the long-distance business under provisions of the Telecommunications Act of 1996, which attempted to promote competition in local telephony in return for allowing the Bells into long distance.

The Bells have made some initiatives in offering long-distance service bundled with local services, but the long-distance carriers made little inroads into the local market.

Large corporate customers widely remain faithful to their long-distance carriers, however, often eschewing the Bells’ regional character and networks. A nationwide operator like AT&T would give SBC the national—and international—footprint that businesses typically need.

A merger between a long-distance carrier and a Bell would prompt review at both the U.S. Department of Justice and the Federal Communications Commission, which would consider potential violations of antitrust laws and the impact on the public interest. Consumer advocates have expressed concern over such merger possibilities in the past, warning that they would lead to higher prices.

According to analysts at Forrester Research, AT&T’s infrastructure and market would complement SBC’s, although the regulatory review and integration efforts would likely mean considerable capital outlay initially.

Neither SBC nor AT&T would comment on reports of the merger negotiations. Rumors of the talks were first reported by The Wall Street Journal and The New York Times.

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