[opendtv] News: SBC Said to Be in Talks to Buy AT&T

http://www.nytimes.com/2005/01/27/business/27deal.html?oref=login&th

SBC Said to Be in Talks to Buy AT&T
  By ANDREW ROSS SORKIN and KEN BELSON

Published: January 27, 2005

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

  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 "very, very 
sensitive" would unite SBC, a Baby Bell with some 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 very 
largest companies, is a shadow of its former self, focusing almost 
exclusively on corporate customers. Last year, AT&T said it would no 
longer market itself to its traditional retail customers.

Still, the executives cautioned that the talks could very well 
collapse. Indeed, 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 said that many issues, 
including a final price, had yet to be resolved.

  Spokesmen for the two 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 cellphones more.

SBC has also 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 also 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 also 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 last July to no longer market local phone service to 
residential consumers. AT&T now has about 25 million residential 
customers and about 3 million corporate customers

Despite its woes, AT&T has worked hard to cut costs, reduce debts 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.

SBC reported its fourth-quarter results yesterday, saying its sales 
rose as profits fell in its fourth quarter

SBC, based in San Antonio, said it earned 23 cents a share in the 
quarter ended Dec. 31. The company said that figure would have been 
34 cents if not for one-time costs, including severance payments and 
expenses from the $41 billion acquisition of AT&T Wireless by its 
Cingular Wireless venture.

  In the period a year ago, SBC earned 27 cents a share.

SBC said its fourth-quarter operating revenue was $10.3 billion, 
compared with $10 billion a year ago. It attributed the growth to the 
addition of 425,000 high-speed Internet lines and a considerable 
slowdown in the erosion of its traditional telephone business. Edward 
E. Whitacre Jr., SBC's chief executive, has said repeatedly that he 
is more focused on dealing with Cingular, which it owns with 
BellSouth.

Mr. Whitacre, like his counterpart at BellSouth, Duane Ackerman, are 
known for their cautious approach to investing and prudent use of 
their companies' money.

  Still, according to industry analysts, AT&T's chief executive, David 
W. Dorman, has been eager to sell the company and perhaps, with the 
company now leaner, he may have found a buyer.

Matt Richtel contributed reporting for this article.
 
 
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