SBC near $16b deal to buy AT&T

AT&T Corp., the matriarch of the modern telephone business, is close to being acquired by one of its progeny, SBC Communications Inc., in a $16 billion deal that would create the nation's largest telecommunications company.

The boards of directors of both companies met yesterday in New York and San Antonio. SBC voted to approve a proposed deal, while AT&T's board was expected to clear the proposal late last night, according to sources from both companies.

The agreement would cap weeks of negotiations and would end AT&T's 128-year reign as the nation's best-known phone company.

If the deal meets with regulatory approval in the United States and Europe, the combined companies would eclipse Verizon Communications Inc., with 60 million residential consumers, millions of business customers, and more than $70 billion in combined annual revenue.

The fate of the AT&T brand, still one of the most recognized around the world, is uncertain, as is the future of AT&T's consumer services, said the sources, who spoke on the condition of anonymity.

A deal would reunite two parts of the original AT&T, which a judge ordered broken up in the mid-1980s to foster competition and innovation and reduce the then-monopoly's lock on the marketplace.

The combined company, with more than 200,000 employees, would become a major local and long-distance powerhouse, especially in SBC's dominant 13-state phone territory that includes California, Texas, and Illinois.

SBC, based in San Antonio, also owns 60 percent of Cingular Wireless, the largest mobile phone company, sells high-speed data service, and has pledged $4 billion toward building a fiber-optic network to deliver video service eventually. With the addition of AT&T, SBC would acquire the nation's largest long-distance carrier, its vast national and international network, and a roster of lucrative business and government customers.

Although AT&T is still a major household brand, its business has fallen off dramatically in recent years. Sales continue to erode in its core long-distance business as more consumers turn to e-mail, wireless phones, and new Internet phone technology as a substitute for long-distance calling.

As revenue dwindled, AT&T began to sell off its parts, handing Comcast Corp. its cable business in 2001 and then spinning off its wireless phone business that same year. AT&T eventually stopped selling local service after regulators decided to phase out the discounts the company once used to lease access to local phone networks.

AT&T's diminished reach was reflected in its $16 billion selling price, a fraction of the $41 billion Cingular paid last year for AT&T Wireless. Sprint Corp. of Overland, Kan., and Nextel Communications Inc. of Reston, Va. have agreed to merge for $35 billion.

Under the tentative deal, SBC would pay $15 billion in stock and $1 billion for a special dividend payment to AT&T shareholders. SBC's chairman and chief executive, Edward E. Whitacre Jr., would retain his titles in the merged company. AT&T's chairman and chief executive, David W. Dorman, would become president.

Analysts said the deal between SBC and AT&T could spur more merger activity, possibly involving giants such as Verizon Communications Inc., MCI Inc., and BellSouth Corp.

"Obviously, if SBC buys AT&T, it makes SBC a direct competitor to Verizon" and other regional phone companies, said Drake Johnstone, an analyst with Richmond-based Davenport & Co.

One possibility is for Verizon to go after Sprint, trying to derail Sprint's pending merger with Nextel, and even paying a $1 billion break-up fee to do so, Johnstone said. By acquiring Sprint, Verizon would accomplish two things: It would become a stronger competitor against SBC and could block a potentially powerful Sprint-Nextel from threatening its wireless business, he said.

MCI could also become a target for takeover, possibly by BellSouth, which owns 40 percent of Cingular, but would be looking for a partner that makes it a viable competitor to SBC-AT&T, Johnstone said. In recent years, both SBC and BellSouth have had private discussions about possibly buying MCI.

AT&T was cofounded as American Bell Telephone Co. in 1877 by Alexander Graham Bell.

AT&T spent decades building a copper-based phone network that reached into nearly every household, and its black rotary dial phones were ubiquitous. It enjoyed a monopoly until 1984.