Regulatory Hurdles Stand before AT&T, SBC Merger

THE JOURNAL RECORD, May 28, 1997 | Go to article overview

Regulatory Hurdles Stand before AT&T, SBC Merger


WASHINGTON (JR) -- A merger of AT&T Corp. and SBC Communications Inc., which would team the nation's largest long-distance phone company with the biggest Baby Bell, would face near-insurmountable regulatory and antitrust hurdles, antitrust and telecommunications attorneys said.

"Antitrust-wise, it doesn't have a prayer," said Washington telecommunications attorney Hank Levine, who represents 40 of the Fortune 100's biggest users of telephone services. "I don't know what these guys are smoking."

Any such deal would be a setback for local telephone service competition in Oklahoma, according to Bob Anthony of the Oklahoma Corporation Commission. "Competition in providing local and long distance telephone service for Oklahoma will suffer a setback if a merger between AT&T and Southwestern Bell occurs," the commissioner said. "Oklahoma needs these two giant telephone companies to compete for customers, not to further monopolize the industry." Officials at AT&T and SBC declined to confirm or deny that they are engaged in merger negotiations, as reported in The Wall Street Journal. "We don't comment on speculation," SBC spokesman Larry Solomon told Bloomberg News. A combined AT&T and SBC would have 60 percent of the $80 billion long-distance market and virtual control over local phone and wireless services throughout the Southwest and California. SBC owns Southwestern Bell and Pacific Telesis, operating in Oklahoma, California, Nevada, Texas, Kansas, Missouri and Arkansas. AT&T, which has been struggling to expand beyond its sluggish long- distance business, has slightly less than 1,000 employees in Oklahoma with an $18.5 million annual payroll in its long-distance, wireless communitcations, Internet connection and direct satellite television operations. To complete such a merger, federal and state regulatory authorities would first have to rule that it meets all of the requirements of the 1996 Telecommunications Act. The problem is that key Federal Communications Commission regulations needed to carry out the law are still being challenged in court, and their final form may still be months away, telecommunications lawyers said. A larger, and likely deal-breaking problem is the threat that regulators would rule that a combined AT&T-SBC Communications violates antitrust laws by hindering competition for long-distance, local- and cellular- phone markets in the West and Southwest, attorneys said. "They've got an antitrust issue of major proportions because they are both so dominant" in their respective markets, said Washington antitrust attorney Lewis Noonberg. "You've got the leading local carrier and the largest long-distance carrier combining in a major section of the country" making it very hard for other competitors to enter and be profitable in that market, he said. Before this proposed merger, Anthony said AT&T was "Oklahoma's biggest hope" for providing real competition in local telephone service. "It makes no sense for (House Bill) 1815 to remove the state's authority to oversee telephone companies just when AT&T and SW Bell are talking about consolidation instead of competition." The Wall Street Journal said negotiators are struggling over the financial structure of the transaction, as well as the name of the resulting company, who would head and where it would be based. Even with the regulatory obstacles, the move suggested to shareholders that AT&T's top executives are willing to take risks after a year when the company's stock fell 12 percent while the broader market rose 26 percent, said Chip Reed, a money manager at the Florida State Board of Administration, which owns 2.2 million AT&T shares. "At least AT&T is thinking, and thinking within its core competencies," he said. The merger would be the largest in corporate history, giving the combined company annual revenue of $80 billion and 248,000 employees. …

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