AT&T merger rumors again surface.

Byline: Robert Luke

Jan. 28--It was just over a year ago that BellSouth was close to clinching a deal to buy AT&T.

But Ma Bell's price tag -- along with its deteriorating revenues and profits, and projections of more of the same -- caused the deal to collapse at the last minute.

Now, SBC Communications, BellSouth's partner in Cingular Wireless, is said to be in talks to buy AT&T for more than $15 billion, creating the nation's largest phone company.

SBC apparently is banking that AT&T will allow it to replace decelerating consumer revenue with fresh growth in the business and government market. AT&T now serves virtually all of the Fortune 1000 and all of the Standard & Poor's 500 companies.

While those involved aren't talking, analysts reckon the pace of deal-making will quicken this year in a telecommunications industry beset with price deflation and growing competition.

Already, Cingular has snapped up AT&T Wireless, sealing the deal for $41 billion last fall to create the nation's largest mobile-phone company with more than 48 million subscribers.

Sprint last month agreed to acquire Nextel in a deal valued at $35 billion.

BellSouth, too, is exploring its options. There's talk it could merge with SBC, fully integrating Cingular into the business. Or it could buy its own wireless provider, such as Sprint. It could even make another pass at AT&T, or approach MCI.

Whatever the scenario, some analysts said it's a propitious time for deal-making.

"Long-term prospects being what they are, operators will likely get a better price in 2005 than in the future," said Booz Allen Hamilton analysts Dominic Endicott, Gary Neilson and Reggie Van Lee in a report last month.

An SBC-AT&T combination also has a better chance to pass federal regulatory muster this time, said UBS Securities analyst John Hodulik.

"The last time these two companies made a similar splash in the papers was 1997 when then-(Federal Communications Commission) Chairman Reed Hundt called the deal 'unthinkable,' " Hodulik said.

What has changed is the competitive environment.

Cable operators this year are expected to aggressively roll out Internet-based phone service using a technology called Voice over Internet Protocol, or VoIP.

But the SBC-AT&T deal would face a thorough review by federal regulators looking at how it would affect competition. Consumer advocates and big business customers would fear an increase in rates.

The merger "can't be good for consumers," Mark Cooper, research director for the Consumer Federation of America, told The Dallas Morning News.

"We were worried about the re-monopolization of the industry, and there you have it," he said. "How do you have competition without competitors?"

AT&T stopped seeking new residential wireline phone customers last year after court rulings denied it discounted access to local lines.

Deal-making is no panacea for the telecom industry's woes, according to the Booz Allen analysts. For one, price deflation in the business is continuing, offsetting the benefits of draconian cost-cutting. (AT&T sacked 23 percent of its work force last year.) Shares of AT&T rose as much as 7.4 percent Thursday before finishing at $19.60, up $1.15, on the New York Stock Exchange.

SBC's shares closed at $23.67, down 91 cents.

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TICKER SYMBOL(S): BLS, T, SBC, MCIP