Rumors Roll Over AT&T

The blockbuster talk has been consistently wrong so far, but that hasn't been enough to shut down the AT&T (T Quote) rumor mill.

Earlier this month, Ma Bell and BellSouth (BLS Quote) were rumored to be closing in on a massive merger that ultimately foundered on price terms. Now, investors and workers at the struggling New York phone giant are bandying about a four-way deal involving BellSouth, Comcast (CMSCK Quote) and IBM (IBM Quote).

Apparently an email has been bouncing around among interested parties, predicting that Wednesday will bring sweeping job cuts, accompanied by a business-by-business dismantling of AT&T.

According to the three-point missive, and a report of the rumor in the The Star-Ledger of Newark, N.J., cable giant Comcast will take AT&T's consumer phone business, Atlanta local phone shop BellSouth will get the business services unit, and IBM will take over AT&T's research labs.

AT&T reps declined to comment formally, but informally some scoffed at the imaginative scenario.

Similarly, some jaded industry watchers were quick to dismiss yet another item from the AT&T grapevine. "I think the AT&T workforce is so desperate for a means of escape that they sit around and have contests on creating the most ridiculous rumor," says a Wall Street analyst who requested anonymity.

Shares of the shrinking New Jersey phone giant sagged 69 cents, or 3%, to $21.40 in midday trading. The company has suffered years of sales declines in its core long-distance business as customers flee to competitors like wireless and local phone service companies.

If rumors buzz especially loud at AT&T, it could have a little to do with its history of industry-bending deals. Under previous management, the century-old telco went on a buying spree in the late 1990s and amassed the largest cable operation in the nation. Heavy debts and declining revenues led the company to abandon the one-stop communications shop strategy, however, and just last November AT&T sold its cable business to Comcast. The company had spun off its wireless unit a year earlier.