The rumor that will not die

We're heard it before, that AT&T and British Telecommunications are in talks to merge. This week, the rumors were reignited. Is there any reason to think the deal might be a reality now?

Major news outlets have said at least three times during the past year that the companies would combine. On Tuesday, the Wall Street Journal, once again vaguely citing "people familiar with the situation," put AT&T and British Telecom back at the conference table, hashing out a deal to merge the company's business service units.

There is one compelling reason to believe that AT&T might go for it - the company's swooning stock price, which has languished in the US$20 range of late. British Telecom stock has been suffering recently as well. On top of the market woes, Concert, the companies' joint venture for business services, does not appear to be living up to expectations.

But then again, there are probably more reasons why the deal isn't likely to happen.

For starters, AT&T is years away from pulling off the breakup of its company, something that has been in the works since late last year, so a merger now would be a difficult proposition to consider. In addition, just getting the Concert joint venture off the ground took some regulatory wrangling, and it likely would be more difficult for an all-out merger to pass regulatory muster. US lawmakers are said to be much more accepting of mergers these days with the new Bush administration, but European regulators, who also would have to sign off on any AT&T-BT merger, are less forgiving. In fact, it was primarily European lawmakers who nixed the proposed mega-merger of Sprint (FON) and WorldCom (WCOM) last year.

But the struggling state of Concert seems to be enough to get tongues wagging. AT&T and British Telecom dumped $10 billion in cash and countless billions more from their core business customers into Concert, and the decision has paid off reasonably well to date. But AT&T says that while Concert met revenue expectations of $7 billion last year, it failed to meet profit expectations. A spokeswoman for the company added that the companies are exploring ways to improve profitability, but no one from either company will comment on the merger rumors.

Given the slowing economy in the US, however, there is ever more pressure to increase worldwide revenues, and merging the two companies might be just the kick in the pants AT&T and British Telecom need to convince the world they are a global power.

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