AT&T and BT -- To Merge or Not to Merge?

SAN FRANCISCO (08/18/2000) - Could a merger between AT&T Corp. and British Telecommunications Ltd., two of the world's biggest telecommunications companies, be imminent?

According to a report in Friday's Wall Street Journal, the two giants are exploring a broad merger that would give both a more prominent role in the new economy, though no formal talks have taken place.

Both companies downplayed the report, dismissing it as "rumor and speculation."

The telecommunications industry has recently seen a wave of consolidation brought on by deregulation and the prospect of tapping into the fast-growing markets of the new economy. In recent years, WorldCom Inc. bought up MCI after BT passed on a merger. Baby Bell SBC Communications Inc. has been aggressively combining with siblings Pacific Bell and Ameritech. Bell Atlantic Corp. roped in first Nynex and now GTE. And Qwest has gotten into the act by picking up US West.

A key goal behind the mergers has been to broaden customer rolls while expanding into wireless and high-speed data-service businesses.

But if AT&T and BT are coming together, many observers believe joint partnerships rather than a direct merger makes more sense.

One reason is that both companies see their stocks as undervalued, and a giant merger of the U.S. and U.K. telecom market leaders would only further dilute, or lock, their current value in a much larger entity.

Joint ventures focused on fast-growing businesses inside AT&T and BT, however, might get a more favorable reception on Wall Street. Already, the two companies have held discussions about several ventures, though no partnership other than Concert, a global provider of phone and data services to multinational firms, has emerged.

One such joint venture might separate business and consumer divisions within AT&T and link these new entities with BT to provide cable and high-speed Net access to homes. In this scenario, John Malone, head of Liberty Media, AT&T's cable content arm and largest stockholder, would likely shape any deal.

Another partnership might focus on each company's wireless business. Providing long-haul, high-speed Net backbone services also would represent an opportunity for combined efforts between the companies. A combined effort would stand a better chance against industry leaders such as WorldCom and startups such as Global Crossing Ltd.

A direct merger is not without its benefits for both sides. It would give AT&T and BT some corporate heft in an increasingly competitive, deregulated telecom world. If united, AT&T and BT could create a worldwide telecommunications behemoth, with one of the world's largest fix-line operations, the third-largest wireless operations and a broad international offering of high-speed data services to multinational corporations.

But such a merger would automatically draw international regulatory scrutiny.

The two companies' Concert had to clear antitrust hurdles from governments in the U.S. and Europe.

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