- The Washington Times - Tuesday, February 1, 2005

SBC Communications said yesterday that it is buying AT&T; Corp., its one-time parent, in a $16 billion deal that would create the country’s largest telecommunications company.

The purchase, which must be approved by AT&T; shareholders and a raft of regulatory agencies, would swallow up a company that dates to the 19th century and Alexander Graham Bell’s invention of the telephone.

It also would reunite companies that federal antitrust regulators in 1984 broke apart, leading to greater industry consolidation, but possibly spurring competition among regional players — the “Baby Bells” — as they operate more and more on each others’ turf.

AT&T;, based in Bedminster, N.J., and often called Ma Bell, and SBC, one of the seven original Baby Bells, have competed fiercely since they were separated in 1984. The companies fought for a limited pool of customers using traditional land lines, as well as an increasing number of clients adding or switching to rapidly changing Internet and wireless technologies.

SBC, based in San Antonio, apparently has won the battle.

“Today’s agreement is a huge step forward in our efforts to build a company that will lead an American communications revolution in the 21st century,” said Edward Whitacre, SBC’s chairman of the board and chief executive officer.

Mr. Whitacre touted the deal as the combination of AT&T;’s international, government and business clients, as well as fast-growing voice-over-Internet business, with SBC’s local customer base, broadband and wireless assets.

Analysts were more skeptical.

“This is a retro merger. This is a voice-to-voice merger in order to reduce costs, dressed up as a [Internet-protocol] new-era merger,” said Scott Cleland, chairman and chief executive officer of the Precursor Group, an independent research company based in Washington.

Eli Noam, director of the Columbia Institute for Tele-Information, said AT&T;, a company with declining revenue, would add little value to SBC but might help it gain some corporate business and expand geographic reach.

“It’s presumably good for SBC. For AT&T;, it’s throwing in the towel,” he said.

Mr. Noam said that for consumers the merger would have mixed results. The loss of AT&T; would remove a major competitive force. AT&T; fought for business customers and battled to help shape federal and state regulations.

But AT&T; stopped selling traditional local plans and sold off its wireless business, so residential consumers would not notice a major difference in service.

At the same time, SBC would be entering new regional markets through the AT&T; acquisition, spurring companies such as Verizon, BellSouth and Qwest to look for partners and step up competition. The three are surviving Baby Bells.

Other long-distance companies, such as MCI and Sprint, are performing poorly, and Mr. Noam said he expected them to go the way of AT&T.;

“In the end, we will probably have 2 vertically integrated companies … a bit of an AT&T; East and an AT&T; West. We are having a kind of reconsolidation,” Mr. Noam said.

Competitors were concerned.

“The proposed combination of the largest and second-largest telephone providers in SBC’s 13-state region raises obvious antitrust concerns that regulatory authorities will have to scrutinize carefully,” said Robert Sachs, president and chief executive officer of the National Cable & Telecommunications Association, a trade association for the cable television industry.

Others said the merger was a necessary step in a rapidly changing industry.

“In an environment where cable, telephone and wireless companies all compete against each other, the combination of these two providers is the natural progression of a communications market working for consumers,” said Braden Cox, technology counsel at the Competitive Enterprise Institute, a nonprofit that favors limited government. CEI receives funding from telecommunications companies, but does not release information on specific donors.

The merger still requires the approval of AT&T; shareholders, as well as the Justice Department’s Antitrust Division, the Federal Communications Commission, several states and international regulators.

“This deal can get done, although the process is fraught with hairy issues,” Mr. Cleland said.

SBC said it expected the deal to be closed by the first half of 2006.

SBC local networks serve 52 million customers in 13 states. The company has a majority stake in Cingular Wireless, which has 49 million subscribers, and operates Internet services. Including Cingular, it posted $73 billion in revenue last year.

AT&T; operates in 50 countries, though its income has been declining steadily. The company posted $31 billion in revenue last year.

AT&T; made a series of missteps along the way to SBC’s proposed acquisition, starting with poor decisions when the government broke up the company’s monopoly in 1984. The company, for example, immediately spun off its wireless business as having little growth potential.

In later years, it also made costly acquisitions in the computer, wireless and cable television industries, projects it had to abandon.

SBC shares yesterday climbed 23 cents to close at $23.85 in trading on the New York Stock Exchange, while AT&T; dropped 52 cents to $19.19.

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