AT&T-SBC Union Now Looks Possible

AT&T is a far cry from the national telephone monopoly it was before its court-ordered breakup in the 1980s. (Peter Newcomb -- Bloomberg News)

In 1997, when rumors flew that regional phone giant SBC Communications Inc. and AT&T Corp. might agree to a $50 billion merger, Reed E. Hundt, who was Federal Communications Commission chairman, called such a deal "unthinkable."

"Unthinkable" because just a little more than a dozen years earlier, the two companies were one and the same, part of a sprawling AT&T telephone monopoly that a federal court ruled had become too dominant and needed to be broken up.

The two companies are again in advanced talks to merge, sources familiar with the negotiations said yesterday. This time analysts and others say the potential for such a deal is being greeted much differently.

AT&T is no longer the telecommunications goliath that a judge split into one long-distance giant and several smaller regional phone companies. It could sell for as little as $15 billion because the local phone companies, which became SBC, Verizon Communications Inc., BellSouth Corp. and Qwest Communications International Inc., are now every bit the rivals of their parent -- mostly because of a government decision in 1996 to encourage more competition in the telephone industry.

Not only did the change in regulations pit local phone companies against long-distance firms, but now cable companies offer phone service, as do cellular phone companies. Cheaper technologies such as Internet phone service are making inroads into the mainstream market, whittling even more away from the traditional local phone business.

AT&T has been increasingly hobbled by the resulting price war and sold its cell phone business and cable television empire. AT&T announced last year that it would no longer market long-distance service to residential customers, choosing to focus on business customers, and analysts have predicted it was only a matter of time before it put itself up for sale.

Negotiations with SBC, reported in yesterday's New York Times and Wall Street Journal, started several weeks ago and are "far along," sources familiar with the talks said. San Antonio-based SBC "continues to consider other options" and could still negotiate with AT&T's rival, Ashburn-based MCI Inc. AT&T, meanwhile, could solicit counteroffers from other regional companies such as Verizon or BellSouth, although sources suggested those combinations are not likely.

The sources spoke on the condition of anonymity because the negotiations are continuing. AT&T and SBC declined to comment.

There has been a recent string of mergers in the phone industry. Late last year, Cingular Wireless LLC completed a $41 billion deal to purchase AT&T's spinoff, AT&T Wireless Services Inc. Last month, Sprint Corp. and Nextel Communications Inc. announced their $35 billion plan to combine.

Despite their changing circumstances, any deal between SBC and AT&T is likely to be scrutinized closely by antitrust regulators, said one source close to the FCC who spoke on the condition of anonymity because no proposal has been brought before the agency.