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AT&T still a tempting target

Market value jumped 6% after news of its talks with SBC

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SBC employee Vinnie Sinatra pushes cable into a conduit in Buffalo Grove, Ill. SBC is in talks to buy AT\\\\&T.

SBC employee Vinnie Sinatra pushes cable into a conduit in Buffalo Grove, Ill. SBC is in talks to buy AT\\\\&T.

Jeff Roberson, Associated Press

NEW YORK — AT&T Corp. can't say when it might stop losing subscribers and revenues, and yet it seems the company's national network and customer base remain hard to resist for SBC Communications Inc.

AT&T also still boasts several million business customers, and SBC clearly sees great potential for selling its wireless and cable TV services to its 24 million consumer phone subscribers.

The market value of AT&T jumped 6 percent to about $15.7 billion Thursday after reports that SBC, the local carrier for most of the Midwest and Southwest, was in talks to buy the nation's largest long-distance company.

AT&T's appeal, however, may not materialize into a deal with SBC if the negotiations bog down over how to value a moving target like AT&T's deteriorating business.

Analysts speculated that if the reports in The Wall Street Journal and The New York Times were accurate, Verizon Communications Inc. and BellSouth Corp. might make bids of their own as a defensive measure.

That could boost AT&T's price tag, though both newspapers indicated SBC was not looking to pay much more than AT&T's current market value.

And even if the talks with SBC are serious, any prospective deal could unravel in a hurry, just as it did a year ago when BellSouth abruptly turned its back on AT&T, fearful Ma Bell was in worse shape than it appeared.

Both AT&T and SBC, the nation's second largest phone company, declined to comment. No. 1 Verizon, which reported its quarterly earnings Thursday, and No. 3 BellSouth also declined comment.

While the year ahead should be free of the type of regulatory surprises that pulled the rug out from under AT&T's strategy in 2004, that company's top executives were noncommittal during their quarterly update last week in discussing when a multiyear tailspin in revenues and customers might end.

"Given that there would be a regulatory lag in the deal process, you have to have a valuation that you feel comfortable will hold itself during that period, and right now I don't feel the likely buyers think that's the case," said Michael Salsbury, a partner at the law firm Chadbourne & Parke who previously served as general counsel of MCI Communications Corp. and then WorldCom Inc.

Still, despite AT&T's declining fortunes, its customer base was so big to begin with that the company likely has enough left to generate cash and profits many years into the future.

AT&T Corp. has an enviable roster of major corporate clients who typically commit to lucrative multiyear contracts.

A takeover would enable SBC to add wireless to the bundle of services, generating more business for Cingular Wireless, which it owns in partnership with BellSouth.

But the residential customer base that would come with any takeover is no small matter for SBC and the other Bells, which are investing billions of dollars in consumer businesses ranging from wireless to cable television.

Another likely draw for SBC is geography, a factor which some experts say could provoke a bidding war with Verizon and BellSouth.

Both of those companies' customer bases include heavy concentrations in the eastern United States, particularly the Northeast — regions where SBC has relatively little presence.

"AT&T's concentration is right up and down the eastern seaboard, right in the heart of its archrival Verizon's territory," said Rich Nespola, chief executive of the industry consulting firm TMNG Inc.

Nespola also noted that SBC is gearing up to compete with Comcast Corp., the nation's biggest cable TV company, which is based in Philadelphia and has major operations in non-SBC territories.