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) rumor mill.

Earlier this month, Ma Bell and BellSouth (BLS) 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) and IBM (IBM).

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.