Kaufman Brothers downgraded Talk America Holdings (TALK

) to hold from buy.

Analyst Rick Grubbs says SBC Communications will begin offering a bundled long-distance and local package in Michigan (Talk America's largest market) by Sept. 26. He notes Talk America derived 80% of its net subsriber additions from Michigan in January, but only 47% in August.

Also, Grubbs says management is moving into other states to mitigate its dependence on Michigan. He says additional competition for bundled packages in Michigan could likely result in margin compression -- a negative for Talk America. He cut the $1.15 2003 earnings per share estimate to $1.07, and trimmed the $1.43 2004 estimate to $1.17 to reflect slightly lower net subscriber additions and lower margins. He also cut the $18 target to $15.