Report: AT&T proposes BellSouth merger

AT&T has begun secret talks to merge with regional service provider BellSouth, BusinessWeek magazine reported Thursday on its Web site.

AT&T President David Dornan proposed in mid-September a merger of equals with BellSouth, in which the two companies would form a combined entity to take on Verizon Communications, SBC Communications and other telecommunication rivals. Under the deal -- code named "Brazil" -- AT&T would spin off its much-courted cable business and then merge the rest with BellSouth, according to the article, which will be published in BusinessWeek's print publication Oct. 8.

AT&T announced plans last year to spin off its cable, consumer long distance and wireless businesses. The company completed the spin-off of AT&T Wireless in July, but temporarily shelved plans to spin off its other assets when suitors for the cable-TV business emerged.

Citing unnamed sources familiar to the negotiations, the BusinessWeek article states that AT&T wants a deal in place by the end of October, and that the value of the deal and the management of the merged company are still in negotiation.

Rumors emerged in March about BellSouth actively pursuing a merger with Sprint, but little has been reported about such potential talks since.

An AT&T/BellSouth merger would undoubtedly face regulatory hurdles. The government forced AT&T to break up its long-distance businesses from its local service businesses in 1983, and the local carriers must still ask permission from regulators to offer long-distance phone service within their geographic areas of dominance.

Both AT&T and BellSouth representatives declined to comment on potential merger talks.

The IDG News Service is a Network World affiliate.