AT&T TO Acquire BellSouth -Sources

NEW YORK (Dow Jones) AT&T Inc. is planning to acquire BellSouth Corp, people familiar with the situation say. A deal between the two could be announced as early as Monday.

Serious talks between the two parties have been going on for a month, these people say. BellSouth's market capitalization is roughly US$56 billion and AT&T is expected to pay roughly US$65 billion.

AT&T and BellSouth declined to comment immediately on the issue.

An AT&T-BellSouth deal would effectively cleave the nation's telecom services into two massive monopolies, each vertically integrated with a local phone operation, business services, and wireless unit. And it would effectively validate the vision of competition laid out by the government - one in which traditional telecom firms compete directly against cable operators rather than against each other.

A combination - which would exceed BellSouth's current $56 billion market capitalization - would nonetheless set a showdown between AT&T and Verizon, as the two fight to control wireless, the growth portion of the telecom business.

It was the steep growth of Cingular - joint owned by BellSouth and the former SBC - that helped push the two firms together, say telecom bankers familiar with the market. As the importance of the wireless business grew, they say, it became inevitable that SBC (which adopted the AT&T name just months ago) would consolidate its position in the South.

Put together, the SBC territory would extend from California to Florida, north to Illinois and south to Texas. Combining the two companies' current market capitalizations, AT&T would have a market value approaching $150 billion, over 50% greater than Verizon.

AT&T chairman and chief executive Edward Whitacre has made a name for himself in the telecommunications industry as a serial acquirer.

Whitacre is able to boast of a string of acquisitions including Pacific Telesis Corp., Ameritech Corp. and Southern New England Telecommunications Corp. But as he nears retirement the market had been anticipating one last hurrah from him; a BellSouth acquisition by AT&T has long been the subject of speculation from analysts, investors and the two companies' rivals.

Still the speedy move to overtake BellSouth came as a surprise so soon after Whitacre's takeover of AT&T Corp. last fall. His company is just starting to digest the $16 billion acquisition. The former SBC Communications Inc. took over AT&T Corp. and adopted the AT&T moniker. The new company dominates nearly every aspect of the industry, from high-speed Internet connections to long-distance phone service, as well as wireless. And Whitacre now has access to the old AT&T's enterprise business and worldwide network.

Such a deal would likely prompt howls of protest in some quarters as it comes not only on the heels of the AT&T-SBC deal but also after Verizon Communications Inc.'s acquisition of MCI.

Those deals were approved with only a few minor conditions despite concerns they would lead to higher prices for business customers.

The wave of mergers has dramatically reshaped the telecommunications industry, and a purchase of BellSouth would further cement the recreation of the old "Ma Bell," which the government pushed to break up in 1984.

The management of AT&T, which has apparently briefed key senior government officials late last week, appears to be betting that the Bush administration and a Bell-friendly Federal Communications Commission won't raise too many obstacles for such a deal, arguing that the companies serve different geographic regions and do not currently compete with one another in a significant way.

Although AT&T and Verizon's last mergers passed both FCC and Justice Department review with little major problems, the latest proposed merger may face more hurdles.

AT&T and BellSouth executives have recently commented about their intentions to explore new revenue streams from their high-speed Internet services by introducing two-tier or "premium" service for Internet content providers.

Concerns about those plans and the concept of "net neutrality," or ensuring that consumers have open access to all Internet sites and services and businesses do not find their content slowed, has become a major problem for the Bells in Washington.

Meanwhile, the FCC that will be reviewing the AT&T/BellSouth deal will likely be a much different body soon with the addition of Robert McDowell, a veteran telecom lawyer who currently serves as assistant general counsel at Comptel, which represents smaller telephone companies and was a vocal opponent of the AT&T and Verizon mergers last year.

McDowell is scheduled to appear before a Senate committee Thursday for his confirmation and is likely to be asked about the merger. Although McDowell is a Republican, his nomination to the FCC was met with noticeable unease by the Bell companies - which have privately expressed some concern his experience working with smaller competitors may make him less than sympathetic to them.

-By By Amy Schatz and Dionne Searcey, The Wall Street Journal

(Almar Latour and Dennis Berman of The Wall Street Journal contributed to this story)

(END) Dow Jones Newswires"

Posted to the site on 5th March 2006