We now know that the folks at SBC (NYSE:SBC) have announced their intent to migrate their IP telephony and long distance traffic onto AT&T's (NYSE:T) network if the two companies merge as planned next year. Today we find out that Qwest (NYSE:Q) and MCI (NASDAQ:MCIP) are also in talks to consolidate.

That both MCI and AT&T have been up for sale is the most poorly kept secret since, oh, I don't know, since the last poorly kept secret. An indication that both of these sales are being completed in hardship is the lack of premium over market price that AT&T agreed to, and the expectation that MCI will do the same, with a projected purchase price of around $6.3 billion. They've been dressed up, waiting for the gentleman callers to arrive.

Muayyad Al-Chalabi, a managing director at telecom research firm RHK, says that the "window was closing for MCI. It lost government contracts last year to Sprint (NYSE:FON) and others, and its small- and medium-enterprise customer base is shrinking. The company hasn't invested much in capital expenditures over the last four years, and even so had among the lowest cash margins in the industry." He added that he didn't see much opportunity for operating efficiency gains in a Qwest/MCI merger, as there just isn't that much overlap in the companies' networks.

Think about this for a minute. This is MCI and AT&T we're talking about, and they're at the point of either merging or dying a slow death. There is simply too much capacity in telecommunications, and the excess has yet to be bled off, since companies like Global Crossing (NASDAQ:GLBC) have been allowed to emerge from bankruptcy rather than fade away.

So, you have an industry with so much excess capacity it ought to be pronounced "airline," and with marginal players that are allowed to get second and third bites at the apple after clearing Chapter 11. Then you see that folks like Ian Cumming and Joseph Steinberg at Leucadia (NYSE:LUK), Carlos Slim at TelMex (NYSE:TMX), and Bill Miller at Legg Mason Value (FUND:LMVFX) have plowed hundreds of millions into this sector in the last two years.

These are shrewd investors; if I knew I were on the other side of a trade from them, I'd have a strong suspicion that I was on the losing side. But I've watched their purchases in telecommunications with amazement. In fact, I did what I'm sure plenty of other people have done -- assumed that they knew something, or saw something in their chosen telecommunications investments that I did not. Certainly, the tax-loss carryforwards at WilTel were attractive for Leucadia. But for carryforwards to be worth anything to you, you must create current earnings for them to offset.

It's easy to assign ex ante success to someone for the very reason that he has shown plenty of facility in the past. Leucadia bought WilTel, so it must know what it's doing.

But what if it didn't? I'm not saying that the last chapter in this story is written, but there is no great investor who hasn't made at least one big mistake. WilTel's value will be ferociously impaired should Leucadia not be able to replace the billion-plus in revenues that its SBC business represents. Two credible competitors to WilTel, AT&T and MCI, were up for sale, and there are very few companies that were likely purchasers, one of which was SBC. This may simply be a case of the nightmare scenario coming true, or it may really be that Leucadia was blind to it. It also may be true -- still -- that there is much more going on beneath the surface. But what in the world attracted them to the telecom business in the first place?

I convinced myself that all of these folks really knew what they were wading into in the telecommunications industry. Maybe they do -- you know these are disciplined folks. But this is a mess that doesn't seem to be hitting equilibrium any time soon, and assuming differently may well continue to prove costly. I know this: It's time to remind myself that just because certain people are right most of the time, that doesn't mean they're right every time.

Bill Mann owns none of the companies mentioned in this article. He wonders if the MCI Center in Washington, D.C., will be renamed this time around. The Motley Fool has a disclosure policy.