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February 13, 1996

MCI Confirms Talks With AT&T About Local Phone Networks

By MARK LANDLER

Warmed by the prospect of two old foes coming together, investors drove up the shares of AT&T and MCI Communications on Monday, after MCI confirmed a report that they were in discussions about teaming up to build local telephone networks.

A spokesman for MCI, Robert Stewart, said the companies were discussing ways to establish direct links to local telephone customers that would bypass those of the regional Bell operating companies. The Wall Street Journal reported the talks Monday.

AT&T's shares rose $1, to $67.50, in heavy trading on the New York Stock Exchange, while MCI's shares jumped $1.625, to a 52-week high of $30.50, in Nasdaq trading.

One week after President Clinton signed legislation opening up the nation's telecommunications industry to competition, local and long-distance carriers have set off on a whirlwind of discussions about joint ventures, partnerships and potential mergers.

But while the detente between AT&T and MCI comes just in time for Valentine's Day, analysts cautioned that the companies were still in the early days of their courtship. And some experts said that antitrust laws would make it difficult for them to cooperate too closely.

"Legislation is going to make for strange bedfellows," said Jack Grubman, a telecommunications analyst with Salomon Brothers, "But now that the bill has been signed, we're going to get a lot of headlines and speculation well in advance of actual deals."

One executive with knowledge of the talks said that MCI and AT&T were likely to swap interests in each other's local phone networks, and team up to build some networks from scratch. Grubman said the companies would focus on a few revenue-intensive markets rather than trying to duplicate the networks of the Bells across the country.

To some extent, AT&T and MCI are simply seeking to gain leverage over the Bells. To offer local service, long-distance carriers will have to lease capacity on the networks of the Bells. Grubman said AT&T and MCI were trying to obtain better terms from the Bells by signaling that they were ready to build their own networks.

William Bane, a consultant at Mercer Management Consulting in Washington, said that AT&T and MCI would probably have to create separate subsidiaries to cooperate on local phone service. Otherwise, he said, the companies would risk running afoul of antitrust statutes.


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