BT and AT&T; in Talks to Merge Units

British Telecommunications is in talks with AT&T; Corp. on ways of “broadening the relationship” between the companies in business services, BT said in a statement Sunday.

An ongoing BT strategic review “includes continuing discussions with AT&T;,” the BT statement said. “These discussions include exploring ways of broadening and strengthening the scope of the relationship between BT and AT&T; in business services.”

Combining the units would let BT and AT&T; better compete against rivals such as WorldCom Inc. and Global Crossing Ltd.

Both companies are under pressure to boost their stock prices and compete with rivals who have merged or grown. AT&T; has lost half its value since December. Its stock rose 50 cents Friday to close at $32.25 on the New York Stock Exchange. American depositary receipts of BT, also down 50% since December, fell $4.94 to close Friday at $111.88 on the NYSE.

Earlier this year, Vodafone Group bought Mannesmann of Germany for $168 billion to make it the world’s largest mobile phone company, challenging BT. AT&T; is struggling to make $100 billion in cable TV acquisitions pay off as it competes with wireless operators such as Sprint Corp.’s PCS Group.

A full merger between AT&T; and BT would probably raise objections from regulators about combining the largest U.S. and British phone companies.

Nonetheless, the next few weeks are seen as a crucial test for AT&T; as the No. 1 U.S. telecom and cable company seeks to reverse its flagging fortunes.

During a two-day retreat starting Thursday, AT&T;’s board is expected to weigh various plans for spinoffs, tracking stocks and mergers.

BT spokesman Simon Gordon said BT intends to make a further announcement on the company’s “strategic review” later this year.