By Jessica Hall

PHILADELPHIA (Reuters) — Shares of long-distance phone companies AT&T Corp. and MCI Inc. have plunged about 20 percent this year, but potential buyers seem to be holding out for clearance sales.

For now, Verizon Communications Inc., the largest U.S. telephone company, and its Baby Bell peers have dismissed the idea of buying a long distance carrier, quelling speculation of a long-awaited industry consolidation.

Hopes for the return of the telecommunications megadeal had been stoked at the start of the year by the auction of AT&T Wireless Services Inc., which attracted several bidders and a winning offer of $41 billion from Cingular Wireless.

Yet the industry remains unmotivated.

So far this year, there have been only 778 deals worldwide in the telecommunications sector, down 24 percent from last year and a 65 percent drop from the boom in 2000, according to a report by Banc of America Securities.

AT&T and MCI had seemed like prime takeover targets, given their shrinking stock prices, prized high-speed communications networks and stable of lucrative corporate customers.

But even Baby Bells craving a stronger foothold in the business sector have stood by as AT&T and MCI struggle with double-digit declines in revenues.

The carriers have been slammed as the Baby Bells forged into the long-distance market with discounted packages of service that also included local, wireless and Internet access. Price wars and corporate downsizing, which lessened the demand and volume of services, also ate into sales.

«We believe that potential acquirers are aware of the old warning against ’catching a falling knife’ and might like to see at least a quarter or two of stability before bidding in earnest,» said Prudential Equity Group LLC analyst Chris Larsen.

The Baby Bells and some private equity firms eyeing the telecom industry may be wise to wait for AT&T and other long-distance carriers to cut jobs, pare debt and shake free of the low-margin residential phone business.

«It’s a question of timing,» said a telecommunications investment banker who requested anonymity. «The longer you wait, the cheaper they get. But the fear is that if you wait too long, someone else will grab them.»