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SBC, BellSouth create wireless giant

The companies say they plan to combine their wireless phone businesses, a venture that could create the second-largest player in the U.S. wireless market.

BellSouth and SBC Communications today said they plan to combine their wireless phone businesses, a venture that could create the second-largest player in the U.S. wireless market.

The merger comes shortly after rival telecommunication giants Bell Atlantic and Vodafone finalized their joint venture, Verizon Wireless, and announced plans to take the wireless powerhouse public.

The BellSouth-SBC venture will serve 16.2 million subscribers, reach 175 potential customers, and bring in $10.2 billion in revenues, according to the companies. The company may offer an initial public offering of stock in the future.

Analysts are already calling the venture a "match made in heaven," citing the two companies' complementary networks and coverage areas.

"This new joint venture creates the scale and scope needed to rival the largest of national footprints," wrote Goldman, Sachs & Co. analyst Frank Governali in a report today. "This should lead to higher growth, with minimal dilution--the best of all worlds."

The telecommunications industry has gone through an intense period of consolidation in the past year as companies try to capture a piece of the burgeoning mobile phone market. Analysts predict that close to 1 billion wireless phones will be in use by 2003, surpassing televisions in annual sales.

Jeff Boetcher, BellSouth spokesman, discusses the advantages of the wireless merger.
Other telecommunications giants are also tapping the market and taking their wireless units public. AT&T's wireless division--the largest mobile phone company in the United States until Verizon Wireless was created earlier this week--filed for an IPO and plans to take its shares to the Street this spring. Sprint's PCS division went public early last year.

SBC provides local and wireless phone service in the Southwest, Midwest and California, while BellSouth serves local and wireless customers in the Southeast. Both companies provide wireless, cable, paging and Internet services.

The new venture will be owned 60 percent by SBC and 40 percent by BellSouth, and each will have two seats on the board of directors, the companies said in a joint statement. No further financial details were disclosed.

Executives said they are considering a public offering of stock, but that no final decision has been made.

"Certainly that's one of the options we have, to bring additional capital into the business, but there are others as well," said SBC Communications marketing vice president Steve McGaw in a conference call with reporters. "We've agreed to look at all our options."

SBC and BellSouth have been negotiating the deal for more than a month. The name of the new company, which will have 25,000 employees, has not been picked yet, nor have the new headquarters or its top executives been chosen.

Executives said the deal, which requires the approval of the Federal Communications Commission, the Justice Department and the European Union, would likely close in late fall. The new name would be released at that time, they said.

The new venture will still have a few gaps to close in its market coverage. Although they offer service in 19 of the top 20 U.S. markets, neither parent company offers voice service in the critical New York City market. Executives said they would try to fill in gaps either by further acquisitions or by buying new wireless spectrum in upcoming federal auctions.

Last year's rampant consolidation has dramatically slimmed the number of companies offering wireless service around the country.

But this isn't necessarily a bad thing for consumers, analysts say. In any given market, the same number of companies will still be competing under different names. The national consolidations simply will make traveling between different regions easier and intensify competition between the giants, analysts predict.

"Today the U.S. marketplace is a patchwork quilt of technologies and standards," said Jeffery Kagen, an independent telecommunications analyst based in Atlanta, Ga. "Tomorrow it will be a seamless experience for the customer."