Merger Talk Rings Hollow for Big Telcos

The telecom merger mill is ready to roll. Now if someone would just give it a good push.

As AT&T(T Quote) and BellSouth(BLS Quote) continue their protracted courtship, word abounds of new discussions among other players. Some are busily lining up would-be blockbuster matches, while others are chalking up contingency plans and considering consolation prizes.

In the wake of Monday's acquisitions free-for-all in the banking and health care sectors, the prospect of a wave of telecom consolidation must sound good to investors. After all, the growth-challenged old-line telcos haven't exactly been the market's sweethearts in recent years. There's only one hitch: Someone's got to move first, and as yet, actual action has been in drastically short supply.

"Basically, if BellSouth and AT&T merged, it would provide a great impetus for the others to do something, since it would instantly make BellSouth a major player," says Sam Greenholtz, an analyst with Telecom Pragmatics.

"Then SBC(SBC Quote) would be forced to do something like jump on MCI, while Verizon(VZ Quote) continues on its own with some asset purchases," Greenholtz continues. "But something has to set this in motion."

Sniffing

A prime example of the urge to merge is at local phone giant SBC Communications, which is said to be exploring a linkup with failed long-distance and business-services provider MCI. Those talks come in response to the oft-rumored prospect of BellSouth's acquisition of the No. 1 player in those markets, according to several industry sources.

Meanwhile, though debt-burdened Verizon says it's sticking with its go-it-alone strategy, that hasn't stopped the nation's largest phone company from sniffing around the broken business bins for cheap assets from outfits such as WilTel (WTEL Quote) and 360 Networks. And just last month, No. 4 long-distance company Sprint (FON Quote) opened its own tentative talks with BellSouth.