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AT&T, GTE reportedly discuss merger

By Nancy Weil
IDG News Service

Pushed by the specter of the telecommunications monolith that would be created if WorldCom, Inc.'s bid for MCI Communications Corp. is approved, AT&T Corp. reportedly has stepped up efforts to find a partner to bolster its lagging local telephone market.

Published reports say AT&T executives are discussing a merger with GTE Corp. executives. That pairing would create an even bigger monolith than the WorldCom-MCI match and, if successful, make for the largest merger to date, stripping WorldCom of that historic footnote.

Reports published by the New York Times and Dow Jones News Service thus far have relied on unnamed sources, or in at least one case, no attribution whatsoever, which analysts say isn't all that surprising given that merger mania is a fact of the industry these days.

"For the last several years, all of the companies have been talking with all of the other companies," said analyst Jeffrey Kagan, of Kagan Telecom Associates in Marietta, Ga.

"There's an ebb and a flow to these merger talks. When all of a sudden some set of factors line up, then it heats up," he said.

WorldCom's unsolicited US$30 billion bid for MCI, which supplanted ongoing plans to pair MCI and British Telecommunications "may have been the straw that broke the camel's back" and pushed AT&T executives into high merger gear, he said.

AT&T has been the source of much speculation ever since Bernard Ebbers announced the bid for MCI last week. Spokeswomen for AT&T and GTE said the companies have a policy of not commenting on speculation or rumor.

Speculative reports aside, analysts agree that AT&T needs to make inroads into local markets and a pairing with GTE would meet that goal.

Buying GTE would give AT&T "a very big footprint" in local phone service, said Paris Burstyn, an analyst at International Data Corp. in Framingham, Mass. Such a merger also would give AT&T a larger Internet backbone and pull together two companies with the same basic culture and strategy.

AT&T and GTE both have "financially driven telephone company mentalities," Burstyn said. And AT&T, which is looking for a successor to replace CEO Bob Allen, is leaning toward filling that slot with someone from the financial world.

GTE, not particularly aggressive with technological advances or strategies does, however, "run a very tight financial ship," Burstyn said.

An alliance between AT&T and GTE would pit the money-making telco strategy against WorldCom MCI, a much more aggressive, entrepreneuerial mix.

Ebbers "doesn't really know much about telephone companies, but he knows about making deals," Burstyn said.

An AT&T-GTE merger would face serious scrutiny from federal regulators, but in the end, might be acceptable because GTE's reach is scattered around the country. Though the local carrier has strong tentacles in particular cities and offers local service in 28 states, it does not dominate in regional markets.

Whatever happens, merger speculation isn't likely to go away soon. In fact, the time may well be right for partnerships on the order of WorldCom-MCI or AT&T-GTE, Burstyn said. Deregulation broke up the Bell system monopoly, but telecommunications isn't the sort of industry that can thrive with a bunch of small companies in charge.

That's in part because so much in the world now depends on reliable telecommunications, Burstyn said.

Deregulation kicked off "tumultous times" for the industry, he said, "but what happens when the technology is allowed to evolve, as it has, is that you come back to the time where it's really better for a few large companies to compete for the same services. We really are entering that point now." Burstyn said.