AT&T to acquire largest cellular phone company McCaw takeover may result in vast wireless network

August 17, 1993|By New York Times News Service

In a move that could profoundly alter telecommunications in the United States, American Telephone & Telegraph Co. announced yesterday that it would acquire the nation's biggest cellular telephone company for $12.6 billion.

The takeover of McCaw Cellular Communications of Kirkland, Wash., would give AT&T control of a vast wireless telephone network, rapidly blurring the traditional line between local and long-distance service.

The deal, which is subject to federal approval, would be the fifth-largest takeover in the nation's history. And for AT&T, which has been busily investing in or acquiring a wide range of communications and computing companies, the announcement represents an aggressive step beyond its previously stated plan to buy only one-third of McCaw for $3.8 billion.

The outright acquisition is AT&T's response to the explosive growth in wireless communications -- a field embracing cellular telephones, two-way paging devices, hand-held computers and mobile fax machines, all of which use radio waves to send and receive information.

AT&T hopes to marry the computerized intelligence of its long-distance network with McCaw's wireless systems to offer a whole new family of customized services. McCaw operates or has a controlling interest in the cellular telephone networks serving many of the nation's largest metropolitan areas.

"Together, we share a vision of wireless communications, a vision of any time, anywhere communications," Robert E. Allen, AT&T's chairman and chief executive said yesterday at the New York news conference where the deal was announced. "This merger is the surest, fastest way to success in this fast-growing market."

For starters, AT&T would market new wireless offerings under the AT&T brand name as part of a combined package with its traditional long-distance services. Over the longer term, the long-distance network could be used to act as a computerized secretary that would screen messages arriving at someone's desk and automatically route them to a pager or pocket phone anywhere in the country.

The takeover should also give AT&T a central spot in the still-infant market for mobile computing. McCaw is already starting to roll out new data services that will allow people to send and receive large volumes of text on the same frequencies that now carry voice conversations.

AT&T, for its part, already owns NCR Corp., a computer maker it acquired for $7.9 billion in 1991, and is part owner of various start-up companies that are creating computers and software for wireless networks.

New monopoly?

The deal needs the approval of both the Justice Department and the Federal Communications Commission. And it is certain to be disputed because it raises the specter of a telephone monolith similar to the old Bell System that was shattered almost 10 years ago.

"The first thing that comes to mind is, will it raise a new monopoly problem?" said James H. Quello, acting chairman of the commission, which must rule on the transfer of McCaw's cellular licenses to AT&T. "If that issue gets raised, it's going to have to be explored."

The biggest opposition is likely to come from the regional Bell telephone companies, which were spun off from AT&T in the January 1984 divestiture that split the old Bell System into

separate long-distance and local-telephone operations.

Many of the Bell companies, which fear that AT&T would be able to use McCaw's cellular network to invade their local telephone business, point out that they remain prohibited under terms of the court-enforced breakup decree from offering long-distance services.

Executives of at least one of the Bell companies said yesterday that they would ask the FCC and the Justice Department to block the deal until the long-distance ban on them is lifted.

"We're not afraid of competition from anybody," said James R. Young, general counsel for Bell Atlantic Corp., which owns local telephone companies from New Jersey through Virginia. "But if we're not allowed to provide long-distance service we're being put at a substantial disadvantage."

Bypassing local carriers

Over the long term, the union with McCaw could give AT&T a powerful new way to bypass local telephone companies to reach their customers. Last year, AT&T paid local carriers $14 billion in access charges, which amounts to 45 cents out of every dollar in cost for long-distance calls.

While virtually all calls now either originate or terminate on conventional phones, many experts believe that wireless systems will increasingly supplant the wall-jack telephone.

The AT&T deal will also intensify a debate that is already raging about the development of pocket telephones and wireless communications known as personal communication services. The FCC is to decide next month on a plan to allocate a new band of radio frequencies for this technology. A big issue in that battle is whether existing cellular telephone companies should be allowed to bid on the new frequencies.

MCI Communications, the second largest long-distance carrier, is trying to form a wireless consortium that would rival AT&T, and it is among the groups lobbying the FCC to block cellular companies from bidding on the new frequencies.

Yesterday's announcement must have been bittersweet for Craig O. McCaw, McCaw's chairman. He inherited the company with his three brothers from their father in 1969. Then it was still a tiny cable TV company that Mr. McCaw supervised from his dormitory room at Stanford University. During the 1980s, McCaw bet billions in borrowed money to snap up cellular telephone franchises, building one of the most innovative, but heavily indebted, companies in the industry.

If the deal is completed, Mr. McCaw will own roughly $1 billion of AT&T stock, and his family will collectively become AT&T's largest independent shareholders. But Mr. McCaw, who will become a member of AT&T's board, will no longer have an executive role.

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