Deal rumors swirl around SBC, BellSouth, Qwest

Rumored alliances in the communications industry sent stock in the local phone companies as well as Qwest Communications International higher today, fueling speculation that another round of merger mania could be on the horizon.

Speculation is swirling on Wall Street that local phone giants BellSouth and SBC Communications may merge their U.S. wireless operations. That would make the duo a worthy adversary to wireless giants such as Sprint PCS, Nextel Communications and AT&T.

At the same time, rumors persist that German communications powerhouse Deutsche Telekom may be interested in Qwest Communications International, a growing carrier still in the throes of acquiring US West.

"Wireless companies are all trying to put a national face on their service. So it makes sense for SBC and BellSouth to consider joining forces in one form or another," independent telecommunications industry analyst Jeffrey Kagan said.

Regardless of whether the rumored deals come to fruition, the speculation underscores the ongoing industry trend toward consolidation. Recent deals such as America Online's acquisition of Time Warner, Qwest's deal for US West, and MCI WorldCom's purchase of Sprint will create massive communications and Internet powerhouses. Vodafone AirTouch recently agreed to acquire Mannesmann for $159 billion, marking the largest-ever corporate merger.

This rash of mega-mergers proves that size is king in the communications industry, and companies such as BellSouth, SBC and Deutsche Telekom are looking to consolidate to compete effectively on a global scale.

The latest merger speculation sent stock in the companies significantly higher today, led by a 25 percent gain by Qwest. Shares in the company closed at 58, a new 52-week high. Qwest representatives declined to comment. "We don't comment on rumor and speculation," said a Qwest spokeswoman.

SBC shares spiked more than 11 percent higher today to finish at 42. BellSouth gained 6 percent today--a sizable one-day gain for the often sluggish Baby Bells--to close at 43.

In a research note, Merrill Lynch said Deutsche Telecom is one among many global players that appear willing to merge to expand into new markets. "We view the fact that there is external interest apparent in selected major U.S. telecom companies as a positive," it said.