Not sure if this was posted - NYT piece on Airtouch and Bell Atlantic.
January 3, 1999
A Bell Atlantic and Airtouch Cellular Union
Seems Destined
By SETH SCHIESEL
NEW YORK -- For at least a year, the main question on Wall Street and
in the telecommunications industry about a potential acquisition of
Airtouch Corp., one of the world's biggest wireless telephone carriers,
by the Bell Atlantic Corp. has been not "if" but "when?" Partners in a national
joint venture since 1994, Bell Atlantic and Airtouch have seemed like natural, if
not preordained, corporate mates.
But over the last six months or so, the reasons for
the two companies to become one have evolved
from convenient to compelling; the
communications industry has continued its
headlong consolidation, and the companies' joint
foe, AT&T Corp., has used its financial and
technological might to rewrite the rules of the wireless business, fueling
consumers' desire for seamless national wireless service and simple flat-rate
pricing.
Now, Bell Atlantic, the nation's No. 1 local phone company, appears poised to
announce an acquisition of Airtouch for at least $45 billion in stock. The
financial details of a deal remained unclear Saturday afternoon and the
companies' boards had not yet given final approval, but executives close to the
negotiations said an agreement could be announced as soon as Monday.
There are two main reasons why Bell Atlantic and Airtouch would want to
merge. The first is that their existing joint venture, Primeco, has not lived up
to expectations, has suffered from serving two corporate masters and is
already threatened, or at least complicated, by Bell Atlantic's pending merger
with GTE Corp., another big local telephone company that also has a sizable
wireless business.
The second and perhaps more important reason is that as the wireless market
has come to be driven by national players led by AT&T, regional operators
like Bell Atlantic and Airtouch are suffering -- or are afraid of suffering soon.
Last year, AT&T introduced a new pricing plan that has turned the wireless
industry on its head. Called Digital One Rate, the new AT&T plan offers
customers flat calling rates of as low as 10 cents a minute, including all
roaming and long-distance charges.
Traditionally, wireless customers have had to pay additional surcharges for
each minute when they used their phone in an area served by the network of a
different company. Under the new plan, AT&T still has to pay those fees to
other carriers when AT&T customers "roam" onto those other companies'
systems, but to the customer, the price remains the same.
While the plan has not yet proved to be wildly profitable for AT&T, it has had
a major psychological impact within the industry and, at least by some
anecdotal accounts, with customers. AT&T can afford to offer the plan
because it has an extensive national wireless network, meaning that it does not
have to absorb the roaming fees too often. Sprint PCS and Nextel offer calling
plans that are similar in some ways.
Bell Atlantic has responded with a wireless plan called Singlerate, but it is
financially difficult for regional companies like Bell Atlantic and Airtouch,
which offers service on the West Coast and in other pockets around the
nation, to compete. Because their networks are not as extensive, they would
have to pay much more in roaming fees to other companies. By joining their
networks, they would be able to battle with AT&T, Sprint and Nextel more
effectively.
Besides, Bell Atlantic and Airtouch have experience working together, though
not always smoothly. In 1994, the companies formed Primeco as a joint
venture to develop digital wireless service in a swath of frequencies that the
Federal Communications Commission was putting up for auction.
As part of the Primeco deal, Bell Atlantic and Airtouch agreed not to compete
in each others' home markets. The problem is that GTE, which Bell Atlantic
has agreed to acquire, already competes against Airtouch, especially on the
West Coast. By Bell Atlantic's acquiring Airtouch, that complication is
removed.
But unless the FCC raises its limits on how much wireless spectrum any one
company can own in a given market, Bell Atlantic would have to put billions
of dollars worth of wireless licenses up for sale after acquiring Airtouch and
GTE.
Federal regulators are not the only ones who may have pointed questions
about a merger between Bell Atlantic and Airtouch, however. A price of $45
billion for Airtouch would represent only about a 10-percent premium over
Airtouch's closing share price on Thursday, and that would be sure to rankle
many of Airtouch's shareholders, who may want to hold out for a better deal.
Copyright 1999 The New York Times Company |
