Communications Merger Rumored for At&t, Sbc; Analysts Doubtful Consolidation Deal Not Imminent, but Corporate Giants' Rumblings Raise Former Issues of Antitrust

By Jerri Stroud Of the Post-Dispatch The Associated Press contributed information . | St Louis Post-Dispatch (MO), May 28, 1997 | Go to article overview

Communications Merger Rumored for At&t, Sbc; Analysts Doubtful Consolidation Deal Not Imminent, but Corporate Giants' Rumblings Raise Former Issues of Antitrust


Jerri Stroud Of the Post-Dispatch The Associated Press contributed information ., St Louis Post-Dispatch (MO)


Could the rumored merger talks between SBC Communications Inc. and AT&T Corp. foreshadow the end of the competitive era in telecommunications?

Or is it a sign that even the biggest telephone companies see mergers as the best hope for survival when long-distance and local telephone companies are getting into each others' markets?

Neither SBC nor AT&T would comment Tuesday on a story in The Wall Street Journal that said the two giants were talking about a merger that could be valued at more than $50 billion. But The Los Angeles Times reported today that a source close to AT&T had confirmed the talks. The Associated Press quoted a source familiar with the talks as saying they reached a serious stage last week, centering on how to value a deal and to make it pass muster with regulators. There was no indication that a deal was imminent, it said. AT&T is the nation's largest long-distance company, with about 60 percent of the market. Its recent merger with McCaw Cellular Communications gave it the lead in wireless communications, too. SBC, the parent of Southwestern Bell Telephone Co., has a virtual monopoly on local service in areas of seven states where Southwestern Bell, Pacific Bell and Nevada Bell provide phone service. SBC also owns one of the three biggest wireless companies in the nation and has an expanding network of international businesses. A merger of the two communications giants would be the largest corporate combination in history. The current record was set last year in the $27 billion merger of Sandoz and Ciba-Geigy, two Swiss pharmaceutical companies. But analysts and others say they have grave doubts that regulators would allow a merger to go forward. A host of hurdles would have to be overcome - not the least of which are the restrictions put on the two companies in 1984 when the old Bell System was broken up. A merger of SBC and AT&T would revive most of the same antitrust issues that led to the breakup of the Bell System in the first place, said Phil Verveer, a lawyer who led the U.S. Justice Department investigation of the old Bell System in the 1970s. "We still don't have any competition to speak of at the local level," Verveer said. A dominant local carrier like SBC could make life difficult for competing long-distance companies if it rejoined its former parent, AT&T. Other problems might include allocation of costs between the two companies and a lessening of the incentives for innovation. "You end up inviting the same kinds of controversies that we had before," said Verveer, now a lawyer in the Washington office of Wilkie Farr & Gallagher, a New York law firm. Local markets in the United States are five to 10 years from significant competition, he said. "I think there's a very slim chance that anything will come of" the rumored merger talks, said Tony Ferrugia, a telecommunications analyst with A.G. Edwards & Sons Inc. "Aside from antitrust issues like their shares of the long-distance and local markets, you have the very serious problem that SBC, which cannot provide long-distance service in its local markets, would be merging with a company that does exactly that. …

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