AT&T targeted for buyout

Published Jan. 28, 2005|Updated Aug. 24, 2005

SBC Communications, the second-largest regional phone company in the nation, is in talks to buy AT&T for more than $16-billion, executives close to the negotiations told the New York Times.

A deal, if reached, would be the final chapter in the 120-year history of AT&T, the first technological giant of the modern age and the original model for telecommunications companies worldwide. A deal would be a reunion of sorts, putting back together some of the largest pieces of the Ma Bell telephone monopoly, which was broken up in 1984.

The talks, which the executives described as fluid and sensitive, would unite SBC, a Baby Bell with 50-million local-line customers, with AT&T, its much-diminished former parent.

AT&T, which only two decades ago ranked among the nation's largest companies, is a shadow of its former self, focusing almost exclusively on corporate customers. Last year, AT&T said it no longer would market itself to its traditional retail customers.

Still, the executives cautioned that the talks could collapse. AT&T has been in talks before. In 2003, negotiations between the company and BellSouth fell apart at an advanced stage when BellSouth saw how weak AT&T's prospects were.

The executives involved in the current talks told the New York Times that many issues, including a final price, had yet to be resolved.

Spokesmen for the companies declined to comment.

The talks come as the telecommunications landscape has shifted from traditional fixed-line service to faster-growing, higher-margin businesses like wireless, broadband and corporate services. And with pricing wars continuing, telecommunications companies are looking to merge or risk being put out of business.

In theory, SBC and AT&T have complementary technology. SBC has a strong presence in California, Texas and Illinois, although, as with all the Bell companies, its fixed-line business has slid as customers use their cell phones more.

SBC has made a strong push to sell broadband lines to consumers and is expanding its fiber optic network to provide video services in the coming year or two. The company also resells satellite television service from the DISH Network.

AT&T, on the other hand, has the largest international fiber network and the deepest client list of major corporations, which are considered valuable because they buy services in bulk. AT&T is a major provider to the government and to companies that operate globally.

While SBC continues to grow slowly thanks to demand for its high-speed Internet lines, AT&T's business is expected to shrink about 15 percent this year. It is trapped in a vicious price war with its main rival, MCI. Verizon Communications, the largest regional Bell company, and SBC have started marketing heavily to small businesses.

Regulators would be unlikely to block a merger given AT&T's diminished role in the industry. The company suffered a setback last year when the Bells won the right to raise fees they charge companies like AT&T for access to their local networks. One result of that was the decision in July to no longer market local phone service to residential consumers. AT&T has about 25-million residential customers and about 3-million corporate customers.

Despite its woes, problems, AT&T has worked hard to cut costs, reduce debt and write down the value of its assets. The moves have made the company, even with its problems, more attractive to companies in search of the big corporate clients that AT&T has.

In the fourth quarter, AT&T's profit rose 84 percent, to $625-million, beating Wall Street's estimates. The jump came mostly because of cost-cutting efforts, including a 23 percent reduction of its work force last year.


A comparison of telecommunications companies AT&T Corp. and SBC Communications Inc:

2004 fourth-quarter revenue sources


$5.5-billion $10.3-billion

9% Local 49% Local

40% Long distance 8% Long distance

29% Data 28% Data

22% Other 14% Other

Sources: The companies; Telerate