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Commentary: Can The SBC-AT&T Combo Make Money?

The colossus has lots of hurdles and little room for error

To listen to execs at SBC Communications Inc. (SBC ) tell it, the company's $16 billion acquisition of AT&T is an obvious coup. The San Antonio local-phone giant gets AT&T Corp., the nation's preeminent long-distance network. Along with it comes a who's who of business clients, not to mention enough savings -- $15 billion -- to virtually pay for the deal. No wonder SBC CEO Edward E. Whitacre Jr. calls the deal "a great opportunity."

Not so fast. No doubt this deal gives SBC, which had revenues of $52.7 billion in 2004, tremendous scale, making it the country's largest telecom with an estimated $85 billion in 2006 revenue, according to Standard & Poor's. But there's a lot more to success than sheer size. AT&T, with revenues of $30.5 billion in 2004, is a business in serious decline. Achieving those cost savings without disrupting operations will depend on flawless integration of complex systems. And SBC's management is already stretched as it works to blend a series of earlier acquisitions, including last year's $41 billion combo of Cingular Wireless, a unit jointly controlled by SBC and BellSouth, with AT&T Wireless. Most critical of all, SBC must reverse AT&T's shrinking revenues and squeeze new growth out of its own operations. "There are a lot of issues that can go wrong," warns Todd Rosenbluth, telecom services analyst for Standard & Poor's.