Nextel Communications, AT&T; Wireless in Merger Talks

Nextel Communications Inc. is in discussions with AT&T; Wireless about a merger that would create a $100-billion enterprise with about 18 million customers in markets across the country, sources with knowledge of the talks said Thursday.

The conversation highlights the continuing quest for scale within the telecommunications world, and analysts said a deal could help alleviate fundamental problems confronting the two companies: Nextel, a fast-growing business in danger of exhausting its limited rights to the airwaves, would gain an enormous partner. AT&T; Corp., deep into a rocky transformation from an old-fashioned long-distance company into one focused on wireless and the Internet, would take another leap.

But legal experts said an AT&T-Nextel; combination could encounter resistance at the antitrust division of the Justice Department, which has recently shown willingness to challenge major telecommunications mergers.

Reston, Va.-based Nextel and AT&T; now compete head-to-head in virtually every major market. In several mergers involving wireless companies with overlapping businesses--most recently when SBC Communications Inc. and BellSouth Corp. combined their mobile holdings--the Justice Department has forced the sale of substantial properties as a condition of approval.

“It raises some fairly obvious horizontal overlap issues in wireless,” said a prominent New York antitrust expert, Stephen Axinn, who was brought in by the Justice Department to review WorldCom’s aborted takeover of Sprint--a deal scotched by the antitrust division. “The way the wireless business is developing, it’s important that players have national scale and there aren’t that many that do.”

Axinn emphasized that he no longer works at the Justice Department and claims no insight into how it would handle such a deal.

Sources described the merger talks--reported in Thursday’s Wall Street Journal--as advanced, though far from conclusive, with major issues remaining.

One source said wireless pioneer Craig McCaw--whose holding company, Eagle River Investments, controls about 15% of Nextel--is intent on ensuring that the Reston, Va., company manage the new venture, a potential sticking point with AT&T.;

Nextel may still be considering other suitors. One source said it has been exploring a deal with NTT DoCoMo, Japan’s largest mobile telephone provider and a leader in the emerging realm of the wireless Internet.