SBC to Acquire New England Telephone Firm

Seeking a potential toehold in the lucrative long-distance business that federal regulators have so far blocked, SBC Communications Inc. said Monday that it will pay $4.4 billion in stock to buy a Connecticut telephone company.

SBC’s proposed acquisition of New Haven, Conn.-based Southern New England Telecommunications Corp. would push SBC’s aggressive expansion into the densely populated East Coast and give it a beachhead in order to compete with Bell Atlantic, the nation’s largest local carrier.

The deal, which must be approved by the Federal Communications Commission and antitrust authorities, would also contribute about 428,000 new subscribers to SBC’s 4.4-million strong Cellular One wireless phone network, the fastest-growing part of SBC’s business.

Under terms of the deal, SBC would pay a roughly 29% premium to SNET’s share price as of the close of trading Friday. In trading Monday on the New York Stock Exchange, SNET shares rocketed $10.88 to close at $60.50, and SBC shares fell $2.13 to close at $72.81.

SBC, the nation’s second-largest local telephone company--operating in Texas, Nevada, California, Missouri, Nevada, Oklahoma, Arkansas and Kansas--will assume $1.4 billion of SNET debt.

Executives of both telephone companies said Monday that the merger would provide efficiency and synergy. SBC is one of the original seven Baby Bells, created after the breakup of the Bell System. After a wave of consolidation in the telecommunications industry, only five of the Bells remain.

SNET, among the largest of independent urban carriers, was never part of the Bell System. It has 1 million long-distance customers.

“This merger reflects the confidence we have in the growth prospects of our companies’ wireless and wire-line business,” said SBC Chairman Edward E. Whiteacre Jr. “Our combination will be good for the customers, share owners and employees of both companies.”

The proposed merger is unlikely to attract competing offers or face opposition at the Justice Department, said Washington antitrust experts. But it could further cloud legal wrangling over how soon and under what circumstances regional Bell companies like SBC will be allowed into the long-distance business.

The SBC deal comes less than a week after U.S. District Judge Joe Kendall in Wichita Falls, Texas, struck down parts of the Telecommunications Act of 1996 that had barred SBC and other regional Bell telephone companies from offering long-distance service until they opened their local phone markets to competition.

The merger is expected to further sharpen the confrontation with federal regulators over the landmark telecommunications reforms. More than a dozen lawsuits have been filed in state and federal courts by the Baby Bells, including SBC, and GTE Corp.

“It will be interesting to see what [if any] conditions regulators may impose,” said Mark Gidley, a Washington communications lawyer. “This deal certainly puts a lot more focus on the long-distance issues arising out of Judge Joe Kendall’s decision.”

Long-distance rival AT&T; Corp. immediately issued a statement attacking the acquisition as anti-competitive.

“We do not believe mergers between telephone companies should be approved unless they give the customers of both companies more choices in service providers,” said Mark C. Rosenblum, AT&T;’s vice president for public policy. “So before any merger like this is approved, both companies should be required to open their local markets to competition.”

FCC officials, who are appealing the Texas court case, declined to discuss the deal publicly. But one high-ranking FCC official speculated that it was unlikely the agency would unilaterally force SNET customers to cancel their long-distance service with the company if the deal with SBC is consummated.

“I think it’s fair to say that’s unlikely to happen,” the official said.

David J. Roddy, chief telecommunications economist at Deloitte & Touche Consulting Group, believes the company can structure its deal with SNET in such a way that the federal reform law might not apply. What’s more, Roddy said that the wireless portion of the deal appears to be the impetus for the acquisition, not the long-distance business.

“The point of this deal is that it bolsters [SBC’s] wireless market and puts them in a high-income region,” Roddy said.