AT&T-BellSouth Dial Wrong Numbers

While AT&T Corp. (T) and BellSouth Corp. (BLS) are widely held securities among mutual funds and exchange-traded funds, the companies’ recent merger agreement has generated only lukewarm enthusiasm.

Todd Rosenbluth, Standard & Poor’s telecom analyst, downgraded his recommendation on AT&T to “sell” from “hold”, citing that the regulatory approval process will be lengthy given the size of the proposed transaction. He also maintained his “sell” recommendation on BellSouth shares.

The transaction, valued at about $67 billion, will further consolidate the telecommunications industry and result in AT&T acquiring sole ownership of Cingular Wireless, the country’s largest wireless voice and data provider with 54.1 million customers. Cingular is currently jointly owned by AT&T (60%) and BellSouth (40%).

“We see benefits for AT&T in owning all of Cingular and leveraging its network in BellSouth territory,” Rosenbluth said. “However, BellSouth was trading at an unwarranted premium to our target price, in our view, given the competitive and operational challenges we expect in 2006. In addition, AT&T is still in the early stages of integrating two large acquisitions that we think will pressure its margins.”