By ANDREW ROSS SORKIN and KEN BELSON / Published: 27 January 2005
SBC Said To Be In Talks To Buy AT&T
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.
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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.
$50.00/ month for basic cable, Bastards!
