Merger Talk Rings Hollow for Big Telcos

10/28/03 - 07:08 AM EST

Scott Moritz

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

As AT&T(T Quote - Cramer on T - Stock Picks) and BellSouth(BLS Quote - Cramer on BLS - Stock Picks) 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 - Cramer on SBC - Stock Picks) would be forced to do something like jump on MCI, while Verizon(VZ Quote - Cramer on VZ - Stock Picks) 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 - Cramer on WTEL - Stock Picks) and 360 Networks. And just last month, No. 4 long-distance company Sprint (FON Quote - Cramer on FON - Stock Picks) opened its own tentative talks with BellSouth.

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