(FORTUNE Magazine) – WHEN FORTUNE CAUGHT UP WITH SBC chairman Ed Whitacre at the Consumer Electronics Show in Las Vegas in January, he was in an ebullient mood. He laid out plans for SBC's big push into video services, a move aimed at transforming SBC from a phone company to a full-service media and communications giant. And he talked about the company's strength in sexy growth businesses such as broadband and wireless. Yes, he declared, SBC was changing.

A month later Whitacre pulled a 180-degree turn, announcing plans to buy SBC's former parent, AT&T, for $15 billion in stock--a deal that does nothing to increase SBC's presence in wireless or broadband or video. In fact, SBC's purchase of AT&T simply doubles down its bets in the traditional telecom space.

Of course Whitacre, 63, has a reputation as a decisive executive with a hearty appetite for big deals. When AT&T broke up in 1984, SBC was the weakest of the Baby Bells; Whitacre's acquisitions of Pacific Telesis and Ameritech remade SBC into one of the brawniest. And each time Whitacre bought a company, the other Bells followed suit with copycat deals--a pattern that apparently is repeating itself: As FORTUNE went to press, Qwest and Verizon were said to be mulling bids for AT&T rival MCI.

Whitacre has never made a secret of his ambition to turn SBC into a global operator that can offer all things to all customers--and AT&T gives him entrée to multinational corporate customers that SBC has only recently started to pursue in earnest. Even in decline, AT&T has been the ATM of telecom, generating $3.7 billion in free cash flow last year. SBC expects to wring costs of $15 billion--basically the pricetag for AT&T--from the combined company by eliminating jobs, adopting some of AT&T's cost-saving strategies, and even putting SBC's own long-distance traffic on the new company's network.

The problem is, selling phone and data services to big companies is a cutthroat business, and a declining one, at that. AT&T excelled at business sales--and its revenue from business customers fell 10% last year due to price competition and deep discounts demanded by these giant customers.

SBC operating chief Randall Stephenson says that eventually the environment will stabilize, and then there will be opportunities to sell companies new applications and services such as, say, Internet Protocol--based private networks. To do so, SBC will need a state-of-the-art, modern network. AT&T, he says, has such a network. Unfortunately, it is hard to know exactly when--or if--SBC can command premium prices for these new services.

In the meantime there's a risk that Whitacre and his team will be so focused on integrating AT&T that they will take their eye off the big battle against cable, which is moving into SBC's core consumer-phone business. (Stephenson insists that won't happen.) The AT&T deal certainly increases SBC's exposure to slow-growth businesses. All the Bells have been working to show Wall Street that more of their revenue is coming from growing--and highly valued--operations such as wireless. And today, for example, about 30% of SBC's revenue comes from wireless. After it swallows AT&T, wireless sales will account for only some 20% of the total.

SBC has been at its best lately when it has forged alliances outside its traditional business. Its joint venture with Yahoo has proved a huge success, helping turn SBC into the fastest-growing provider of broadband services. Rather than pursue a forward-looking deal--say, investing further in video distribution or broadband--Whitacre seems to be looking backward with AT&T. And the whole industry is following his lead. -- Stephanie N. Mehta