End of the Line For Ma Bell

Mother of All Telecom Losing Independence

San Antonio-based SBC would become the nation's largest telephone company with the purchase of AT&T. (Eric Gay -- AP)

The $16 billion deal agreed upon yesterday that would bring AT&T Corp. into the fold of rival SBC Communications Inc. represents a final humbling for what was once the preeminent telecommunications company in the world.

But for some AT&T veterans, it's also a chance to put together two things that never should have been torn apart: Ma Bell will be reunited with one of the Baby Bells 21 years after a painful separation prompted by a Justice Department antitrust suit.

"From a customer standpoint, I never had anyone come up to me and say, 'This is the most wonderful thing that's ever happened.' They say, 'Why the hell did you do that?' " said William M. Ellinghaus, AT&T's president at the time the Bell system broke up.

Ellinghaus, who started as a line worker for the local Bell company in Baltimore in 1940, admitted satisfaction in the reunion. But the terms of the deal reveal just how far AT&T has fallen in the years since the breakup on Jan. 1, 1984.

At the time, the feeling was that AT&T would do well on its own in a lucrative long-distance business that had subsidized local service for decades. The question was whether the seven regional operating companies -- known as the Baby Bells -- would be able to survive without their mother.

"The conventional wisdom was that AT&T had made a brilliant move by dumping the slow-moving utility part of its business and staying with the high-tech-oriented part," said Eli M. Noam, director of the Institute for Tele-Information at Columbia University. "People thought the future would be characterized by competition between two giants -- AT&T moving into computers and IBM moving into telecommunications. Both tried and both failed."

International Business Machines Corp. ultimately regained its footing, remaking itself into a business services company. AT&T, by contrast, flailed around as it sought to find a revenue stream to supplement long-distance, which quickly became a commodity subject to vicious price wars. Its ventures into cable and wireless both fell flat.

The story since 1984 has played out the opposite way for the three primary surviving Bells -- Verizon Communications Inc., BellSouth Corp. and SBC -- which used local service as a platform for profitable bundles of voice, data and video services.

So dramatic was the change in fortunes that SBC, which itself is the sum of three Baby Bells, plans to swallow AT&T whole for only $16 billion. That's just a fraction of the $41 billion that Cingular Wireless LLC paid for AT&T's former wireless spinoff last year.

The proposed deal consists of a $15 billion stock exchange, plus the distribution of $1 billion in dividend payments to AT&T shareholders. The merger would take over a year to complete and would create a telecommunications juggernaut with more than $70 billion in annual revenue.