Overture for DirecTV Follows Form for SBC

Taking the road less traveled -- or even unseen -- has become the hallmark of Edward E. Whitacre Jr. and his 13-year reign at SBC Communications Inc.

A slow Texas drawl and an aw-shucks demeanor mask an ambitious man who led a massive wave of consolidation in the staid telecommunications industry, transforming the smallest regional Bell through groundbreaking takeovers into the nation’s second-largest local phone carrier.

So for some, it’s not surprising to hear that SBC is in preliminary talks to acquire DirecTV, the nation’s largest satellite television provider.

“It came a little bit out of nowhere, but Ed Whitacre has acquired a lot of companies, some very big ones,” said analyst Scott Cleland at the Precursor Group research firm in Washington. “I’m skeptical of this deal, but it is a way to buy some growth in an unregulated industry.”

SBC declined to comment, but sources said General Motors Corp. recently authorized its Hughes Electronics Corp. unit in El Segundo, which owns DirecTV, to hold discussions with SBC. Hughes is also in talks with News Corp., the media conglomerate that had seen itself as the only logical buyer.

On Monday, DirecTV announced a $2.95-billion refinancing that could make it more attractive to suitors. GM’s 30% stake in Hughes is worth about $5 billion, but the entire company could fetch as much as $20 billion.

Analysts say San Antonio-based SBC would be able to finance a deal for DirecTV, but doing so would drag down the industry’s healthiest balance sheet.

While News Corp. is looking at DirecTV to fill a gaping hole in its worldwide satellite television business, SBC wants a video service to bundle with its local, long-distance, high-speed Internet and wireless offerings.

“Video is a gap it has to fill. The prices are good, so why not do it now,” said Blaik Kirby, a researcher at Adventis Corp. in Boston.

It may seem ill-timed for Whitacre to consider a bid while the telecommunications industry is dragging bottom, SBC is losing access lines and major regulatory issues are still in flux.

With revenue and earnings falling, some analysts argue that SBC should be looking to shore up its telecom operations, not going off in a new direction.

On the New York Stock Exchange on Monday, SBC’s stock fell 68 cents, or almost 3%, to $24.50; shares in Hughes rose 45 cents, or 4.6%, to $10.20.

But bidding for DirecTV certainly wouldn’t be out of character for the SBC chairman and chief executive, said analyst Blair Levin at Legg Mason.

Whitacre startled the industry a few months after the Telecommunications Act of 1996 was enacted by buying a fellow Baby Bell, Pacific Bell parent Pacific Telesis.

The unprecedented deal was ultimately valued at $16.5 billion. Less than two years later, SBC became the only company to gobble up a second Baby Bell, acquiring Chicago-based Ameritech in a deal ultimately valued at $81.1 billion.

Whitacre’s bold acquisitions show that he can act with speed and a “clarity of vision,” Levin said.

“The opportunity he saw was to grab the most critical part of the network -- the last mile -- and some of the biggest markets,” he said. “He had a strategy post-1996 that others didn’t have.”

At one point in 1997, Whitacre even held merger talks with AT&T; Corp. The talks broke off, however, after then-Federal Communications Commission Chairman Reed Hundt labeled such a combination “unthinkable.”

Whitacre, a 61-year-old Texas native, has spent his entire career at SBC. The former volunteer president of the Boy Scouts of America can be self-effacing, but he has been a strong-willed leader at SBC who knows how he wants his various business lines to perform, gives executives a lot of responsibility and then holds them strictly accountable, one source said.

He also has built SBC into a lobbying machine, arguing stridently that federal competition rules inhibit investment by forcing the Bells to lease equipment to competitors at deep discounts.

But lately, as the FCC prepares to lift some restrictions to spur capital investments, several Bells have backed off that stance, saying demand is so weak and the economy so bad that they can’t buy new equipment for about two years. SBC said only that it would resume spending “over time.”

The company’s interest in buying DirecTV, Levin said, speaks mostly to the competition it sees from cable companies. Cox Communications Inc., for example, says it has picked up 30% of the local telephone market in southern Orange and San Diego counties, where it provides TV and high-speed Internet service. Unlike the Bells, cable firms face little regulation on telephone service over their networks.