FCC Could Revive Telcos' Urge to Merge

"You have major issues coming together here that will trigger consolidation," says Hyman. New UNE-P rules and long-distance approval for the Bells will force the telcos to address their strategies for the future, he says.

While nearly all observers who have ventured an opinion on the matter see the need for consolidation ahead, not everyone sees AT&T as the immediate prize.

"AT&T will probably get bought three years from now," says Lehman Brothers analyst Blake Bath. "But the first priority for the Bells will be to focus on their wireless businesses. Once we've had some wireless consolidation, the Bells may consider AT&T."

Fog Rolls In

One of the hurdles to mergers is the uncertainty of the market. Declining sales warrant continued cost cuts, and there's no sense that trend is ending. But one of the reasons that would compel a Bell to buy AT&T is the opportunity to seize the crown jewel of phone services -- namely big corporations.

The Bells are expected to be granted approval for entry into the long-distance market this year. The barrier to that market has prevented the Bells from selling big-ticket contracts to national and multinational companies. Since there are three reasonably healthy Bells and three less-healthy long-distance companies, the crude math suggests some sort of pairing, say analysts.

Now, amid the widespread financial collapse of the industry, federal regulators may have a much different opinion about blockbuster mergers, say some experts.

"That whole triopoly thing is probably sounding good to the antitrust people these days," says Hyman. "There's something to be said for the prospect of three financially stable companies doing business in the market."