Merger may give local Bell hangups SBC, Ameritech to enter Balto. market after $62 billion deal

Phone companies

May 12, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

The proposed $62 billion merger between regional telephone companies SBC Communications Inc. and Ameritech Corp. could prod Bell Atlantic Corp. to get back into the mergers game, analysts say.

San Antonio-based SBC's planned purchase of Chicago's Ameritech would be the largest consolidation the merger-happy telecommunications industry has seen. The deal, announced yesterday, would make SBC the largest Bell company, giving it a local-service empire of 56.3 million lines in 13 states.

The blockbuster deal reflects the industry's bigger-is-better mentality. Since the Telecommunications Act of 1996 set the stage for local and long-distance companies to enter each other's markets, phone companies have sought to merge to cut costs and offer a broader array of services.

"Size matters, and the industry is consolidating down to just a few big players," said Scott C. Cleland of the Legg Mason Precursor Group in Washington.

Of the seven regional local-service firms created by the 1984 breakup of AT&T, only four will be left if the SBC-Ameritech marriage is approved: SBC, New York-based Bell Atlantic, BellSouth Corp. of Atlanta and US West Inc. of Denver.

The Bells have often cooperated on legal and regulatory issues and have largely avoided poaching on each other's turf. As deregulation continues, however, this is likely to change.

"If I were Bell Atlantic, I would be very concerned about this merger," said Jack Nadler, a telecommunications attorney at Squire, Sanders & Dempsey LLP in Washington. "As things have shaped up, Bell Atlantic and SBC are clearly the two largest [Bell companies]. Ultimately there is a good possibility that these companies will want to compete against each other."

In its merger announcement, SBC -- widely viewed as the most aggressive of the Bells -- said it will offer local service in the 30 largest markets outside its home territory, including Baltimore.

This represents a direct strike against Bell Atlantic, which prides itself on its large, commercially desirable Eastern urban markets. Timothy K. Horan, an analyst with BancAmerica Robertson Stephens in New York, said he expects that SBC will offer local service in Bell Atlantic's territory within 12 to 18 months.

Horan said Bell Atlantic may respond to SBC's growth with merger or strategic partnership. He said Bell Atlantic "may need a more national or international strategy more quickly than it had anticipated."

Analysts named a number of potential partners for Bell Atlantic, including British Telecom. However, the most mentioned company was BellSouth. A Bell Atlantic-BellSouth merger would create a lucrative local-service territory stretching from Maine to Louisiana.

Bell Atlantic, which bought Nynex Corp. last year for $25.6 billion, declined to comment on whether it would attempt another merger. Company spokeswoman Susan Kraus said, "Through our own merger [with Nynex], we have the scale and scope to compete effectively with anyone, including a combined SBC and Ameritech. We're not going to change our strategy in any way."

Pub Date: 5/12/98

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