DATELINE–Detroit, Mich.

AT&T IS denying published reports that its recent buyout of Tele-Communications Inc. is only the first step in a consolidation that will ultimately merge the company with General Motors.

Rumors that began circulating on Wall Street shortly after the details of the $31.8 billion acquisition were made public last week suggest that AT&T is engaged in secret negotiations with the U.S. Big Three automaker. The brewing controversy threatens to scuttle FCC approval of the long-distance carrier’s recent deal with TCI.

Industry analysts had already pointed out the hidden costs of the unprecedented telecommunications merger, which will force AT&T to absorb more than $11 billion of TCI’s outstanding debt. In addition, officials from both companies have acknowledged that they may need to spend up to $500 per customer to ready TCI’s existing network for planned two-way data and voice communications.

Allegations that an AT&T and GM conglomerate looms on the horizon have cast a dark shadow over the initial euphoria surrounding AT&T’s bid for TCI. To many investors the match between the nation’s second biggest cable television service and the largest U.S. telephone company appeared to be nothing less than a revolution in communications promising the long-predicted consolidation of telephone, Internet, and television services.

Even Federal Communications Commission chair William Kennard welcomed the creation of the new telecommunications behemoth. “These companies bring some synergies that are quite compelling,” he stated in a New York Times interview published last Thursday.

But less than five days after the announcement, sources from within the FCC are saying that the merger may be in jeopardy. An article appearing in the Sunday edition of the Detroit Herald Times confirmed the existence of an internal General Motors memo linking the ongoing United Auto Workers strike in Flint, Mich., to secret talks between GM and AT&T.

The GM strike, which was temporarily pushed out of the headlines by news of last week’s telecommunications merger, has already cost the automaker close to $1 billion and put 40,000 GM employees out of work. Industry analysts are suggesting that GM may be using the strike to streamline its operations before launching a new expansion plan that is reported to involve a merger with AT&T.

In the memo leaked to the Detroit Herald Times, a senior GM official states that a merger is in the works between the automaker and AT&T. A crucial excerpt from the 14-page memorandum published by the Herald Times refers explicitly to an impending buyout:

By acquiring AT&T, the Company will lay claim to more than TCI’s subscriber base. Currently a third of U.S. households are connected to the TCI coaxial cable network… The takeover of TCI provides AT&T with instant access to a national network of installation/repair personnel and vehicles. This infrastructure, coupled with the development of wireless services, will allow the Company to create and drive the market for mobile information services.

GM has denied the validity of this memo, stating that it was “part of a management training course.” But the response from AT&T has not been as forthcoming. Michael Armstrong, AT&T’s CEO and until recently a high-level GM executive, has declined to issue a public statement. Dunigan O’Kenauwa, a senior analyst with Morgan Stanley, does not doubt that the GM document indicates actual corporate strategy.

“The final two pages of the memo mention a white paper that outlines GM’s plan to produce high-tech mobile homes using technology developed by AT&T,” O’Kenauwa said. “It’s no secret GM has been working on a smart car that could directly compete with office technologies.”

In fact, GM has been building a national communications network based on the automobile since the late 1920s. Its plan to turn cities into roads gained momentum in the late ’40s when GM subsidiary National City Lines replaced public rail transport across the country with a temporary bus network. By 1956, GM had persuaded the U.S. Congress to spend $50 billion in public funds on interstate highway construction.

In the mid-1990s, this same overburdened and clogged highway system drives the market for cheap cellular telephony, transforming the automobile into a mobile office.

While GM has succeeded in creating universal gridlock on today’s highway system, industry analysts wonder whether the automaker can move quickly enough to capture this bumper-to-bumper market. If the automaker can use the current strikes as an opportunity to cut its workforce by half and makes a successful bid for the cable-ready AT&T, it will most likely be the first to deliver digital mobile living vehicles to a waiting public.

With such high-tech mobile living cars on America’s highways, commuters who are daily trapped in traffic would no longer need to get to their homes or offices. Instead, the car would become their home and office. Leaving and arriving will be a thing of the past. The only potential roadblock is the timing of anticipated federal funding for the Automated Highway System.