Operator, Please Connect Me

Long-distance companies hunt for allies in the telecom wars

When such bitter rivals as AT&T and MCI Communications Corp. start talking alliance, it's clear that there's a whole new ball game in telecommunications.

Since Feb. 8, when President Clinton signed legislation deregulating the business, the major long-distance carriers have been moving to establish themselves in the local, cable-TV, and other markets from which they had been barred. The initial goal is to offer local calling as the linchpin to a raft of services, from wireless to satellite TV. MCI CEO Bert C. Roberts Jr. has already let slip that his company is holding preliminary talks with AT&T. Their aim: to share the cost of building local-calling networks. For its part, AT&T has signed some 20 deals with rivals of regional Bell companies to resell local service, while Sprint Corp. and its cable partners are building a nationwide wireless network to be used for local access.

Don't expect any megamergers soon, however. For now, the long-distance carriers will initiate low-risk partnerships rather than high-risk acquisitions, testing the waters in new markets before making major financial commitments. Look for AT&T, MCI, and Sprint to sign resale agreements with Bell companies rather than merge with them. "There are a lot of paths to the customer, and it's a little early to declare exactly which one is the right one," says Joseph P. Nacchio, executive vice-president of AT&T's consumer and small-business division. So AT&T, MCI, and Sprint are seeking partnerships with any company with a wire into homes--from cable-TV operators to electric utilities.

TRUSTBUSTER ALERT. Besides, mergers may not be looked on kindly in an industry where the Big Three still hold a lock on the long-distance market. "Anytime there is a merger in this business, it gives the Justice Dept. a chance to sink its teeth into you," says Scott Cleland, an analyst with Washington Research Group, a consultancy. And Justice would likely come down hard on any deal that smacks of reconstituting the Bell System after all it went through to break up AT&T 11 years ago.

For smaller long-distance carriers, though, mergers could well be in the offing. WorldCom Inc. and LCI International Inc., the fourth- and fifth-largest long-distance carriers, are the partners of choice for the Baby Bells, which want to avoid giving business to their biggest rivals. A Baby Bell could acquire WorldCom or LCI and immediately vault into a top spot in the industry. That's one way to hit a home run in this brand-new telecom game.

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