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THE DAY AHEAD: AT&T revs AWE inspiring IPO

AT&T Wireless couldn't have picked a better ticker to describe its business and initial public offering this week. "AWE" sums it up when it comes to the number of shares offered, the sheer girth of Ma Bell's wireless unit and the amount of cash to be raised.

But you won't be in awe of the aftermarket performance of AT&T's wireless tracking stock. Shares of AT&T Wireless (profile) will move more like a glacier than a fleet-footed IPO. "This is about long-term capital appreciation," said David Menlow, head of "This one will have no appreciable premium and trade like a featureless IPO, but it will grow over time."

AT&T Wireless: AWE-inspiring?

Here are some of the AWE-inspiring figures. The company is offering 360 million shares globally in what is expected to be the largest U.S. IPO ever. AT&T Wireless, tentatively scheduled to trade Thursday, has a price range of $26 to $32. To warm up Wall Street, AT&T released its wireless unit's first quarter financials Monday.

AT&T said first quarter revenue for the AT&T Wireless Group grew 40.7 percent to $2.2 billion from $1.6 billion a year earlier. When adjusted for the purchase of Vanguard Cellular in the second quarter of 1999, revenue increased 33.1 percent, it said.

AT&T Wireless added 418,000 subscribers in the first quarter, up from 372,000 in the first quarter of 1999. Earnings before interest, taxes, depreciation and amortization, or EBITDA -- excluding other income and restructuring costs -- grew 112 percent to $430 million from $203 million a year earlier. AT&T also upped its EBITDA growth projections to 40 percent to 45 percent.

But AT&T really didn't have to build up its wireless offspring. AT&T Wireless is massive. The company has 18,000 employees and $7.6 billion in revenue for 1999. Including partners, AT&T Wireless has more than 12 million subscribers.

To distribute its tracking shares, AT&T enlisted an army of underwriters. Pick a big-name Wall Street firm -- any firm will do -- and chances are it's underwriting this offering.

Indeed, AT&T Wireless will make a lot of noise, which is impressive considering it's a so-called "tracking stock." The AT&T Wireless stock will track the performance of AT&T's wireless assets. But shareholders of AT&T Wireless won't have the same voting rights that an AT&T shareholder enjoys. Ma Bell, which controls the AT&T Wireless board of directors, can convert AT&T Wireless shares into AT&T common stock.

The AT&T Wireless offering is estimated to raise about $10.13 billion. Ma Bell keeps about $3.13 billion for "general corporate purposes," and AT&T Wireless gets $7 billion to build out its network.

Menlow said there won't be much of a tracking stock hangover for AT&T Wireless. "Institutions and individuals will buy into this," he said. However, Menlow said he thinks the tracking stock structure is a "train wreck waiting to happen." Until there's a catalyst for that train wreck, however, tracking stocks such as AT&T Wireless and Sprint's PCS unit (NYSE: FON, PCS) will be solid performers.

Aside from the tracking stock concerns, there's not a lot wrong with AT&T Wireless in terms of the business. Analysts said AT&T Wireless will boast a strong management team. John Zeglis, 52, will be CEO of the wireless unit, and Mohan Gyani, an alumni of AirTouch Communications, will be chief financial officer.

Like its wireless peers Nextel (Nasdaq: NXTL) and Sprint PCS, AT&T Wireless is losing money. For 1999, it lost $321 million on a pro forma basis.

And speaking of competition, AT&T Wireless faces a lot of it. The Bell Atlantic/GTE/Vodafone/AirTouch (NYSE: BEL, GTE, VOD) joint venture, MCI WorldCom/Sprint (Nasdaq: WCOM), VoiceStream Communications (Nasdaq: VSTR) and SBC Communications (NYSE: SBC) will all be formidable competitors.

To fend off the competition, AT&T Wireless said it will continue to build out its network, leverage the AT&T brand, migrate customers to digital services, and acquire other wireless providers as necessary. With its windfall this week, AT&T will have plenty of cash to meet its goals.