Anyone want to buy an IXC?

While talks to sell AT&T Broadband continue, AT&T officials reportedly have approached all RBOCs about the possibility of merging the rest of the IXC—its business and consumer units—into their companies after the broadband unit is sold or spun off.

AT&T has discussed merger possibilities with BellSouth, Qwest Communications, SBC Communications and Verizon Communications, according to the Wall Street Journal, citing unnamed sources. Although its enterprise customer base remains strong, AT&T’s stalwart long-distance business has eroded rapidly amid increased competition, particularly from the RBOCs.

“These are very, very strange times we are in,” said Scott Cleland, CEO of the Precursor Group. “AT&T is for sale—it’s … a distressed, depreciating asset right now that’s being shopped around. Now, the Bells have to establish a value for the depreciating asset.

“The question is all about price. AT&T wants to offload the risk to the Bells.”

From a regulatory standpoint, any RBOC-AT&T merger is “possible” but will be complicated, Cleland said. However, a deal with Verizon or SBC would be “an order of magnitude more difficult” than a merger with BellSouth or Qwest, he said.

Many analysts once believed BellSouth eventually might merge with Qwest, of which BellSouth owned a 10% stake. However, the relationship has soured publicly recently, with Qwest CEO Joe Nacchio openly criticizing BellSouth for selling 60% of its stock in his company.

Reports of AT&T’s talks with the RBOCs follow yesterday’s article from Business Week magazine citing talks between BellSouth and AT&T. Like other analysts, Cleland dismissed the notion that AT&T can get an RBOC to agree to a “merger of equals” that the IXC reportedly desires. But the fact AT&T is initiating the merger talks is notable, he said.

“In any negotiation, it shows who has the weaker hand,” Cleland said. “It’s like a relationship between a boy and girl. In this case, AT&T is chasing the Bells, saying, ‘Look how pretty I am.’”