AT&T and MCI ponder alliance against regions


New York

AT&T and MCI, the two long-distance telephone giants that have traditionally been the bitterest of rivals, are considering joining forces to take on America's regional telephone companies in their local markets.

The talks between MCI, which is 20 per cent owned by British Telecom, and AT&T constitute the first ripples of a much larger earthquake that is expected to shake the US communications landscape following the signing by President Bill Clinton last week of a sweeping deregulation bill.

The bill lifts many of the controls that for decades have prevented players in the industry from crossing into each other's territories and essentially reverses the 1984 legislation that forced the break-up of the old AT&T and created the regional telephone companies, known as the bells.

For the long-distance carriers, including AT&T and MCI, it gives them the chance to enter the lucrative local markets, while at the same time the bells can begin offering long-distance service to their customers.

A partnership between MCI and AT&T would allow them to share the cost of building local networks and switching systems, which could run to as much as $5bn and even to $20bn if they are to be competitive.

"We're very interested in making a deal," the president of MCI, Gerald Taylor, told the Wall Street Journal yesterday. AT&T declined to comment, however. Shares in both companies rose slightly in early trading in New York yesterday.

Without some partnerships, the task of breaking into the local markets would be daunting even for such behemoths as AT&T. As a result of the 1984 legislation, the regional bells on average control 95 per cent of the local service networks.

If AT&T and MCI build local networks together, it would be an arrangement not dissimilar to those applying to the laying of international telephone cables. Transoceanic cables, for instance, are usually co-owned and co- used by several long-distance companies from many different countries.

Among other signs of the coming realignment of the industry, the two powerful eastern US companies, Nynex in the New York area, and Bell Atlantic, which covers the seaboard to the south of New York, have revealed that they are in preliminary merger talks. AT&T, meanwhile, has begun investing in the satellite television industry in the US.

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