Wall Street was abuzz with telco pairing possibilities Thursday in the wake of reports that SBC ( SBC) and AT&T ( T) have rekindled merger talks.
With a potential blockbuster phone deal in the works, contingency planning and speculation moved into high gear among industry observers and investors. The obvious matches include a counteroffer for AT&T from Verizon ( VZ) or BellSouth ( BLS), a move by one of the Bells for MCI ( MCIP), or a possible linkup between Verizon and Sprint ( FON). Shares in would-be targets like AT&T and MCI rose, while shares of would-be acquirers like Verizon and SBC slipped. Even Verizon CEO Ivan Seidenberg, who is typically dismissive of consolidation pressure, seemed to concede on his company's earnings conference call Thursday that the industry is at a bit of a crossroads. Verizon, like all the Bells, has both a shrinking regional local phone business and a thriving wireless unit. What's lacking, arguably, is a large presence in business services and international voice and data operations. Should one of the Bells like SBC or BellSouth acquire a long-distance and business-services specialist like AT&T, it would suddenly expose a large gap in Verizon's service offering. Asked on the conference call why there would be any reason to acquire a long-distance company with eroding revenue and margins, Verizon chief Seidenberg pointed to the compelling business services component of the hypothetical long distance company. "Enterprise is of interest to us," said Seidenberg, adding "we look at everything every day." As generic as that response may sound, to some investors it was a clear signal that Verizon is keeping its options open. Though reports by The Wall Street Journal and The New York Times have AT&T and SBC in advanced merger talks, sources familiar with the discussions say nothing is particularly imminent, and that no exclusive allegiances have been created.