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Cellular giants in $5 billion merger

AirTouch Communications buys US West Media Group's domestic cellular telephone business in a deal worth $5 billion.

AirTouch Communications (ATI) today agreed to buy US West Media Group's (UMG) domestic cellular telephone business in a deal worth $5 billion, another sign of consolidation in the increasingly competitive industry.

The buyout, the latest in a string of telco consolidation, "recognizes the competitive environment," said US West executives. AirTouch and US West previously were marketing partners in their separate U.S. cellular businesses.

AirTouch has been a leader in rolling out so-called digital wireless services that provide voice, video, and data transmission from a single hand-held unit. Earlier this week, AirTouch said it would begin offering wireless email and Internet messaging services in the Denver area.

The company will add up to 1.9 million customers with the buyout, bringing its total to 10 million customers worldwide. It also will assume $2.2 billion in debt in the deal. Still, the company hopes the buyout will strengthen its foothold in the western United States, a fast-growing market.

US West stockholders will receive a tax-free distribution of AirTouch stock in the sale. But the companies noted that legislation introduced in Congress this week could block tax-free stock distributions in deals like these, and would kill the buyout if signed into law.

AirTouch was created in 1994 by the breakup of Pacific Telesis into two parts: one for wireless and the rest for other phone services. Since then, PacTel was gobbled up by SBC Communications, which operates Southwest Bell.

In midday trading today, AirTouch rose 1 point to 24-1/2.

AirTouch's stock performance has disappointed many investors. It recently has been trading below its initial public offering price.

The slumping price comes despite rapid growth both at home and overseas.

US West Media Group also has interests in cable television and owns an Internet city directory called DiveIn. It is involved in a legal dispute with Time Warner, one of its largest shareholders.

The sale of wireless will reduce the company's debt load and let it focus on an expanding cable TV empire, executives said.

A US West affiliate offers local phone service in the Rocky Mountain states, as well as the Pacific Northwest.

US West's foreign cellular properties weren't affected by the buyout.