SBC gets foothold in east region Texas phone giant, Conn. utility merger valued at $4.4 billion

Telecommunications

January 06, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

A rival telephone company is about to enter Bell Atlantic territory.

SBC Communications Inc., perhaps the most aggressive of the nation's regional telephone companies, announced yesterday that it has agreed to merge with Southern New England Telecommunications Corp., a phone company that serves Connecticut.

The $4.4 billion all-stock merger would give SBC a beachhead in the Northeast, a region that Bell Atlantic Corp. has dominated since its merger with Nynex last year.

Many analysts had expected that SNET might be absorbed. However, the presumption was it would be Bell Atlantic, not San Antonio-based SBC, that would do the absorbing.

Jonathan Jacob Nadler, a telecommunications attorney at the Washington law firm of Squire, Sanders & Dempsey, said that while the merger might be "something of a disappointment" to Bell Atlantic, it would not threaten the New York-based Bell's overall strength.

"I think maybe their pride will be a little hurt, but I don't think that economically this will be a big loss for them," he said.

For its part, Bell Atlantic had little to say in the wake of yesterday's announcement. The company released a brief statement that said, in part, "Given our priorities, investing in SNET is not a strategic imperative."

Nonetheless, SNET's turf represents what Merrill Lynch & Co. Inc. analyst Richard C. Toole called "the hole in the doughnut," the largest area in the Northeast where Bell Atlantic, the largest regional phone company, with customers from Maine to Virginia, does not reign supreme in local telephone service.

Now that hole may be filled by Bell Atlantic's rambunctious sibling. SBC, which had 1996 revenue of $23.5 billion, has emerged as a fast-growing, litigious telecommunications giant. Originally known as Southwestern Bell, the company spread from its base in the south-central United States last year with a $16.5 billion purchase of Pacific Telesis Group, the company that served the Far West.

SBC has been vocal in its displeasure with the way the 1996 Telecommunications Act has been implemented, feeling that it places too many limitations on the expansion of the local phone companies into long-distance service. The company was one of the litigants in last week's decision by a federal court in Texas that declared those limitations unconstitutional.

At a news conference at SNET's headquarters in New Haven, Conn., Edward Whitacre, SBC's chairman and CEO, said the close timing between the Texas decision and the SNET merger announcement was "coincidental."

SNET's headquarters will remain in New Haven, and the company, with 9,700 workers in Connecticut, will continue to do business under the SNET name. Whitacre said no layoffs are anticipated.

The chairman and CEO of SNET, Daniel Miglio, said the two companies had been discussing a consolidation in earnest for two or three months. When asked if there were any other companies bidding for SNET, he declined to comment.

SNET, founded in 1978, had 1996 revenue of $1.9 billion. It occupies an odd niche -- due to a quirk in industry regulations, SNET is legally able to provide both comprehensive local and long-distance service in a single market, a feat none of the regional phone companies has yet pulled off.

Observers said SNET's experience in penetrating long-distance markets was attractive to SBC, which is trying to do the same elsewhere. In addition, SNET's 5.7 million potential wireless customers in Connecticut, Rhode Island and western Massachusetts are seen as a nice fit with SBC's northeastern wireless markets in Boston and upstate New York.

Meanwhile, SNET gets what every small and midsize telecommunications company seems to be looking for: a big partner.

"We are beginning to feel the pains of being relatively small," Miglio said, "and we realize that with all the players in the industry continuing to get much bigger, it might be wise for us to try to hook up with a quality larger company to assure our success over the long term."

Officials at SBC and SNET said they anticipated that the merger would be finalized by the end of this year. It must still be blessed by shareholders and by state and federal regulators. Analysts said the merger has a good chance of survival, given the past approvals of far larger telecommunications mergers such as SBC-Pacific Telesis and Bell Atlantic-Nynex.

The Department of Justice had no comment on the merger yesterday. A statement from the Federal Communications Commission's chairman, William Kennard, said only, "We would examine the proposed transaction to ensure that it is in the public interest."

Some of SBC's rivals are hoping that regulators take a hard look at the deal.

"I don't believe that mergers between monopolists were what TTC was contemplated by the Telecommunications Act," said John Lang-hauser, AT&T vice president for law and government affairs.

However, Langhauser said AT&T was not absolutely opposed to the deal: "With the right conditions, such as the opening of local markets, perhaps it's something we can live with."

Pub Date: 1/06/98

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