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The companies have been in on-again, off-again talks during the past three years and have come within days of striking a merger agreement at least twice during that period, according to people familiar with the situation. Now, as the discussions get under way again, the most-important obstacles remain price, the strategic risks for BellSouth and the potential regulatory roadblocks.

Conservative BellSouth, the regional Bell phone carrier of Atlanta, would be taking a big risk by bidding for the U.S.'s largest long-distance company in terms of sales, which has reported 15 consecutive quarters of declining revenue.

Buying AT&T would give BellSouth quick access to the U.S.'s largest roster of lucrative business clients. But there are risks involved in turning a strong regional player into a national competitor in the cutthroat long-distance market, Lehman Brothers analyst Blake Bath said. AT&T has said it expects price competition in its flagship service to business to remain fierce. In the third quarter, operating margin in AT&T's business-services division fell to 6.6% from 13% a year earlier.

Why does BellSouth want to pounce now? AT&T shares have rallied during recent months, potentially making a bid more costly. AT&T of Bedminster, N.J., is likely to face stiffer competition next year when MCI, formerly known as WorldCom Inc., is due to emerge from Chapter 11 bankruptcy-court protection shorn of most of its debt. BellSouth might be able to pay less if it waits.