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Rumors Roll Over AT&T

The stock slides amid dogged speculation about potential job cuts and four-way mergers.

The blockbuster talk has been consistently wrong so far, but that hasn't been enough to shut down the AT&T (T) - Get AT&T Inc. Report 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) - Get International Business Machines Corporation Report

.

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.

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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.

And now, after a brief stabilization in the business services industry, a new price war has broken out in the wholesale market, thanks to the likes of low-cost restructured outfits

WilTel

(WTEL)

and

ICG

.

Making matters worse for AT&T, outsourcing firms like

EDS

(EDS)

and IBM have plunged into the service management business,

taking a slice out of Ma Bell's high-margin sales. These outsourcers are hired by large companies to integrate various communications services. Given their expertise and scale, the outsourcers are often able to lower the overall costs for clients and take a cut of the proceeds.

With telecom still in turmoil, and once-failed now debt-free rivals returning to the battlefield, AT&T's fortunes don't seem to be improving.

"The best thing to do, if they really have something in the works, is get it done soon," says Forrester Research analyst Lisa Pierce, who does telecom consulting for a number of phone companies and business clients.

"Do it now and spare us and your customers the uncertainty," Pierce advises.