SBC, BellSouth to combine wireless operations

Mobile-phone carrier will service West, South

Telecommunications

April 06, 2000|By BLOOMBERG NEWS

SAN ANTONIO -- SBC Communications Inc. and BellSouth Corp. said yesterday that they will combine their U.S. wireless operations to form the No. 2 mobile-phone carrier and may follow AT&T Corp.'s lead by selling shares to the public.

The as-yet-unnamed company will have 16.2 million customers, mostly in the West, Southwest and Southeast. SBC will own 60 percent of the venture, and BellSouth will own the rest. Other details were not disclosed.

Wireless companies are racing to form nationwide networks to cut costs when customers make calls outside their home regions. SBC and BellSouth said together they can offer wireless Internet access and other services that will help them better compete with AT&T, Sprint Corp.'s PCS unit and Verizon Wireless, the new venture formed by Bell Atlantic Corp. and Vodafone AirTouch PLC.

BellSouth and SBC "have seen the light. To play in the U.S. wireless game, you have to be national," said Jeff Hines, a wireless analyst at Deutsche Banc Alex. Brown. The venture may buy other companies, bid on new wireless licenses and issue debt or stock to raise cash for expansion, SBC and BellSouth said.

Analysts said the venture's creation does not foreshadow a union of SBC and BellSouth. Bell Atlantic and Nynex Corp. began a wireless joint venture, Bell Atlantic Nynex Mobile, in July 1995 before agreeing to combine all of their operations in April 1996.

"It certainly has the ability to bring both companies closer together," said Kevin Roe, an analyst at ABN Amro Inc. "But the strategic motivation here is wireless, in order to compete with the true nationwide players." Roe raised his rating on SBC to "buy" from "outperform." Shares of Atlanta-based BellSouth, which serves nine Southeastern states, rose 50 cents to close at $49.375. San Antonio-based SBC, the largest U.S. local-phone company, added 31.25 cents to $46.3125.

The venture will own a network in 19 of the nation's top 20 markets, and will reach 70 percent of the country. Having a nationwide network will help SBC and BellSouth cut the payments they make to other phone companies to complete customer calls.

The combination will not hurt earnings, SBC and BellSouth said. The venture would have had $10.2 billion in revenue and $3.4 billion in cash flow in 1999.

The transaction, expected to close by 2001, requires the approval of the Federal Communications Commission and the European Union, and a review by the Justice Department. The companies said they will have to divest some overlapping wireless properties to obtain the approvals, but they were not more specific. The name of the new company, its headquarters and chief executive are to be announced soon, the companies said. The venture's board will have four members.

If they decide to sell shares, SBC and BellSouth will be tapping into soaring investor demand for wireless stocks. Shares of Nextel Communications Inc., a nationwide wireless company, have surged more than threefold in the past year. Sprint PCS shares have more than doubled in price.

AT&T said last week that it plans to sell 360 million tracking shares of its wireless group at $26 to $32 each. The offering, expected this month, could raise as much as $11.5 billion, making it the largest-ever U.S. initial public offering.

Verizon Wireless said it plans to sell shares by the end of the year. Verizon will include the wireless assets of GTE Corp. once Bell Atlantic completes its $91 billion purchase of the local phone company.

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