Ailing AT&T still a target

AT&T Corp. may be a rapidly shrinking shell of its former self, but its blue-chip business customers and worldwide network still make it an enticing $16 billion takeover target for SBC Communications Inc., consultants and industry analysts say.

Neither company would comment yesterday on widespread reports they are in advanced merger talks. A takeover of Ma Bell by SBC -- one of the original Baby Bells spun off in 1984 after an epic antitrust battle -- would likely mark the end of the fabled, 120-year-old AT&T brand. It could also trigger a secondary wave of telecommunications mergers and takeovers.

For more than five years, AT&T's revenues have been steadily dropping. Last summer the company said it would effectively abandon the consumer phone market, except for its CallVantage Internet phone service. AT&T spun off its wireless operation in 2001, and a year later sold its cable television business to Comcast Corp. as Wall Street repudiated Ma Bell's $100 billion foray into cable.

Roughly three-quarters of AT&T's $30.5 billion in revenues last year came from its remaining 3 million business customers. SBC, along with other Bells including Verizon Communications Inc., has struggled to emerge as a serious alternative to AT&T and MCI for Fortune 500 companies that need huge, complex voice and data networks linking dozens of locations.

''SBC has been hungry to get into this big-enterprise market, but it's an area that AT&T really still dominates," said Judy Reed Smith, the president of Atlantic ACM, a Boston telecommunications consulting firm. ''They must think that at the end of the day, it's a good deal for them to buy their customers and their sales force."

Industry analysts said a combination of the nation's biggest long-distance phone firm and its second-biggest local phone company is likely to face hard scrutiny by US antitrust regulators. But unlike five or 10 years ago, it is no longer unthinkable because both face so much more wireless and Internet competition.

''An SBC-AT&T combination would be doable from an antitrust and regulatory perspective," said Blair Levin, a former Federal Communications Commission chief of staff who is now managing director of Baltimore investment bank Legg Mason Wood Walker Inc. Levin predicted, however, that the companies could face ''a highly contentious" review taking up to 20 months and ''resulting in demands for major divestitures that would be costly and complicated."

A merged company might, for example, have to divest AT&T consumer long distance customers in states where SBC is the main local phone company, including Connecticut, California, Texas, Illinois, and Ohio.

President Bush will soon name a new, presumably Republican appointee to the FCC to replace chairman Michael K. Powell, who said last week he will resign in March. The Bush administration and his FCC appointees have generally backed telecom mergers and gave quick approval to last year's $41 billion takeover of AT&T Wireless Services Inc. by Cingular Wireless. SBC owns Cingular 60-40 with BellSouth Corp.

''It's probably fairly natural that there is some market restructuring," Powell said in an interview with Bloomberg News at a business conference in Switzerland.

Glen Macdonald, a vice president of Boston strategic consultant Adventis, said an SBC-AT&T combination ''makes a lot of sense for both parties. I think it's also going to force Verizon to respond" by bidding to take over MCI Corp. or Level 3 Communications Inc. to serve big US corporations and multinationals.

But Verizon chief executive Ivan G. Seidenberg, in a conference call with financial analysts, said: ''We have nothing to report. You know, we look at everything every day. I don't view anything I read this morning as anything out of the ordinary."

SBC has previously been reported to be close to buying BellSouth. But a takeover of AT&T would likely rule that out and would also seem to preclude SBC buying out BellSouth's 40 percent stake in Cingular.

One other factor driving a deal, industry analysts said, is SBC chief executive Edward G. Whitacre is 63, close to the traditional Bell System retirement age. Whitacre spearheaded SBC's acquisitions of Southern New England Telephone and former Baby Bells Ameritech and Pacific Telesis Group. Buying AT&T would close out his career with a flourish.

Peter J. Howe can be reached at howe@globe.com.