Tuesday, May 12, 1998 | 10:14 a.m.
A new well-financed player in the Las Vegas local telephone service market could emerge from a $62 billion stock-swap deal announced today that would be the second-largest merger in corporate history.
Fast-growing phone giant SBC Communications Inc. has agreed to purchase Baby Bell rival Ameritech Corp. in a deal that could have local implications if SBC is successful in its bid to offer local phone service.
The deal would create a powerhouse communications company with operations in nearly every region of the country, likely to serve as a potent rival to AT&T Corp., and to WorldCom Inc. after its pending $37 billion takeover of MCI Communications Corp.
But Las Vegas telephone service providers are skeptical the deal will be allowed by the Department of Justice, which broke up AT&T and the Bell telephone monopoly in the early 1980s.
Bill White, assistant vice president of corporate communications with Kansas City, Mo.-based Sprint, the dominant local phone service provider for Las Vegas, said his company believes the Department of Justice will closely scrutinize the merger.
"The Department of Justice will have to take a close look at this transaction on various grounds," White said. "It appears that they are putting together two big monopolies instead of one large one. There's no evidence to suggest that this is going to open up local markets to competition, which was the intent of the Telecommunications Act (of 1994)."
"The announcement is still a long way from becoming reality," said Nield Montgomery, chief executive for MGC Communications Inc., a Las Vegas-based local service provider. "It appears SBC is trying to reconstruct the old Bell System. I would have some real questions if the Department of Justice would be favorably predisposed to seeing the merger happen."
Montgomery said the merger would have an adverse impact on competition and he expects the long-distance providers to join in fighting the merger.
"It'll be a challenge for SBC to sell the notion that this is the right thing to happen for consumers," Montgomery said.
Clark Peterson, general manager of Nextlink, a local telephone service provider concentrating on business customers in Southern Nevada, said he was not surprised by SBC's plan to enter the Las Vegas market. He believes his company's emphasis on local response will give Nextlink the upper hand in a competitive environment.
"We knew that they had filed for (local) certification under Nevada Bell, so they're one of about 42 that have filed to provide service in Las Vegas," Peterson said. "We are completely local and decentralized and we'll continue to set ourselves apart with our fiber-optic network. Our strength is in being local."
SBC, parent company of Nevada Bell and PacTel, provides local phone service in Northern Nevada and several rural communities outside Las Vegas with about 330,000 lines statewide.
In Southern Nevada, Nevada Bell is the local service provider for Pahrump, Beatty, Indian Springs, Fish Lake Valley, Lathrop Wells and Sandy Valley.
The company also sells wireless service in Southern Nevada.
Today's merger announcement said the combined SBC-Ameritech would enter 30 markets, including Las Vegas, with a mix of local, long-distance, Internet and other data services. Las Vegas would be the 22nd largest new market the company is entering.
The combination announced today would be second only to the pending $82 billion merger of Travelers Group Inc. and Citicorp.
An SBC-Ameritech combination would give the combined company to be known as SBC 57 million phone lines, or nearly one-third of the nation's total. By comparison, Bell Atlantic, with operations along the East Coast, has 41 million phone lines.
If approved by shareholders and regulators, the takeover would leave just four remaining Bells out of the seven created in the 1984 antitrust breakup of the original American Telephone & Telegraph Co., which provided both local and long-distance phone service.
In addition to SBC and Bell Atlantic, the others are U S West near Denver and BellSouth in Atlanta.
In a series of mergers and acquisitions since deregulation began in 1996, communication companies have been scrambling to outgun the competition by getting bigger and offering a wider array of services, including cellular, local and long-distance phone service.
SBC Communications, formerly called Southwestern Bell, has led the way. It bought San Francisco-based Pacific Telesis Group a year ago for $16.5 billion and is working to complete its $5 billion acquisition of Southern New England Telecommunications Corp. of Connecticut.
SBC would be paying a premium over Ameritech's market value of $48.3 billion, based on Friday's closing stock price of $43.875 a share.
"Given the size and significance of the transaction we expect close scrutiny but ultimate approval from regulatory authorities," said Edward E. Whitacre Jr., chairman and chief executive officer of SBC.
The companies said Whitacre would remain as chairman and chief executive of SBC. Ameritech CEO Richard Notebaert will remain as chairman and chief executive officer of Ameritech.
Until now, Notebaert has appeared determined to remain independent, avoiding the combination frenzy of other Bells while aggressively purchasing large stakes in European phone companies.
But analysts have noted that Ameritech, based in Chicago, appeared a ripe takeover target because of its solid Midwestern business and what some called its failure to move aggressively to compete under the new era of deregulation.
The parent of phone companies in Illinois, Indiana, Michigan, Ohio and Wisconsin, Ameritech also has moved aggressively into other non-core businesses such as cable television and its home-security business.
Both Ameritech and SBC, like all Baby Bells, have sought to get into the $90 billion long-distance business. Ameritech has been working with state and federal regulators to break into the Michigan long-distance market.
SBC has taken another route, turning to the courts in many cases, to force regulators to move more quickly to allow it to move into Oklahoma and other states.
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