let the megamergers begin

THE EXPECTED $16-BILLION COMBINATION OF SBC Communications Inc. and AT&T is stirring things up a bit among the Bell brethren.

Just days after the SBC-AT&T news broke earlier this year, it was reported that Qwest Communications International Inc. had made an offer for MCI, with Verizon also possibly mulling a bid for MCI.

“SBC will inherit AT&T’s substantial enterprise customer base in Verizon’s operating territory, especially in New York,” says Allan Tumolillo, COO of Probe Financial Associates Inc. “This merger will allow SBC to leap ahead of Verizon and BellSouth and challenge MCI for enterprise market leadership. Verizon will have to respond.”

Probe believes the deal ultimately could push Verizon to acquire AT&T’s traditional rival: MCI Inc.

SBC has a strong consumer services story — with 5.1 million DSL Internet lines and nationwide wireless coverage through its 60 percent ownership of Cingular Wireless, which has 49 million subscribers across the country. But the business side of its operation has had a more uphill climb. While SBC has pushed to sign up corporate customers in New York and other out-of-region areas as well as within its traditional region, the company has had limited success in appealing to large, multisite customers because of the limited reach of its network.

But the acquisition of AT&T will help SBC quickly move to the summit of business services, suddenly morphing SBC into a giant communications provider for Fortune 1000 companies with a global network spanning approximately 50 countries. Of course, that would make SBC more of a force outside its region against other major carriers — such as Verizon.

If the deal closes, the telecom leviathan that results will be worth about $71.2 billion in annual revenue based on 2004 figures, although sales at AT&T have been falling steadily in its consumers unit for years.

SBC, the second largest local phone company, expects to generate about $15 billion in savings through an acquisition that comes on the heels of other big deals, including the planned combination of Sprint Corp. and Nextel Communications Inc.