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)

The key concern for regulators could be the overlap of the two companies' business and residential customers in SBC's territory. SBC is the nation's second-largest telecommunications company, after Verizon. It is the biggest local phone company in 13 states, including California, Texas and Illinois. AT&T remains the nation's largest long-distance company, with customers in all 50 states. Because of the national scope of the combined businesses, antitrust approval could require a difficult and lengthy review, the source said.

Some consumer activists said they were wary of the deal.

"It is a remonopolization of the phone business," which means fewer new services and higher prices for consumers, said Mark N. Cooper, research director for the Consumer Federation of America.

SBC has 36 million residential customers, but its business overall is eroding because of competition from wireless, cable-phone service, and other newer technologies. SBC is trying to sell more of its local and long-distance services to businesses, AT&T's core strength these days, by offering Internet phone service and packages of wireless and video services. SBC is negotiating to retain the AT&T brand, a source said.

AT&T is finding it more difficult to remain a stand-alone company. Last week, the company said it expected its $30.5 billion in annual revenue to fall by 15 to 18 percent this year as it exits its consumer business and loses small-business customers. The company, which cut its workforce to about 47,000 last year, plans to eliminate 5,100 more jobs this year.

Some analysts said the deal could shift AT&T's burdens to SBC.

"It's a dumb idea," said Scott C. Cleland, chief executive of the District-based Precursor Group Inc. "SBC has successfully returned to top-line growth" by selling more long-distance, high-speed Internet services, and wireless service, he said. "Why would SBC tie its mast to the fastest-sinking ship?"

Others say buying AT&T gets SBC into the business market quicker than it could on its own.

"It's a great deal for SBC, because AT&T is cheap and it has a great presence in the business market" and has relatively high margins, said Susan Kalla, an analyst with Friedman, Billings, Ramsey & Co.

In a statement announcing quarterly financial results Wednesday, SBC chairman and chief executive Edward E. Whitacre Jr. did not discuss the negotiations except to suggest the company was open to acquisitions. "We will continue to develop our business both organically through investment and opportunistically through acquisitions like those we have done in the past, a strategy that has given us the scale and operating capabilities that we enjoy today."

Staff researcher Richard Drezen contributed to this report.