According to reports in both the New York Times and the Wall Street Journal that quoted people familiar with the matter, SBC and AT&T are in talks to merge.

AT&T is currently the largest US long-distance phone provider in the United States, but for years now has been struggling with falling revenues and increased competition. It is estimated that local carriers such as SBC and Verizon Communications have poached more than 35 million residential long-distance customers from it.

Current CEO David Dorman has spent two years scaling back the company after his predecessor spent more than $100 billion on acquisitions, and amassed $65 billion of debt, as part of an unsuccessful attempt to expand beyond long-distance services. Mr Dorman has had to cut the workforce by more than a quarter, and in July last year AT&T retreated from consumer services in order to boost profit from its business segment.

Previously, in 2003, AT&T was the target of a possible takeover with BellSouth, but talks broke down as AT&T’s sales in 2004 fell to the lowest level in 20 years.

The move of US consumers towards mobile phones and so called triple play services (voice, data, and video) from cable and wireless operators, has added to the difficulties facing the 120-year-old carrier that was responsible for bringing telephone communication to the United States in the early part of the previous century.

Unfortunately for AT&T, it spun off its wireless unit (AT&T Wireless Service Inc) in 2001, leaving it with no real growth engine. AT&T Wireless was acquired by Cingular (a joint venture between SBC and BellSouth) in February 2004 for $41 billion.

However, there are some doubts over whether a deal between the two carriers is realistically possible. SBC is extremely busy integrating AT&T Wireless into its Cingular operation, and there are also concerns over how it could finance the $16 billion price being mooted, especially when you remember that it has had to find a lot of cash to fund the hefty AT&T Wireless purchase price.

The deal also may face regulatory hurdles from Federal authorities, as AT&T and SBC occupy the number one and number two slots in many consumer markets. It is possible the combined company may have to sell its consumer business to win approval. There are also regulatory hurdles to be faced at state level.

San Antonio, Texas-based SBC was spun off from AT&T in its 1984 break-up by the US regulatory authorities. Since then, it has grown into the second-largest US phone company by sales, with more than 50 million local-telephone customers. Indeed, SBC is the biggest local telephone provider in 13 states, including California and Texas.

The advantages for SBC of an AT&T purchase would be the corporate business it would obtain. This would boost sales and eliminate the cost of renting long-distance space. However one has to wonder whether a cheaper option, to let AT&T wither further and then cherry pick the remaining assets, would be the more sensible route.