NEW YORK-Charles R. Lee, chief executive officer of GTE Corp., and Ivan G. Seidenberg, CEO of Bell Atlantic Corp., rode into town July 28 on a horse with no name, a planned combination carrier as yet lacking a new handle.
“Not so fast, boys,” said the pale rider from out West, AirTouch Communications Inc., as it fired a warning shot July 31. The San Francisco-based carrier, which ranks itself as the world’s largest wireless services company, has two partnership agreements with Bell Atlantic that could head off the planned Bell Atlantic-GTE merger at the pass.
The $50-plus billion stock-for-stock pooling of interests, with Lee and Seidenberg sharing the reins, would create a New York-based multiple service telecommunications giant that would be the nation’s largest cellular carrier. The new company will be renamed without vestige of either corporate identity, Lee said at a news conference July 28.
“This merger of equals … joins Bell Atlantic’s sophisticated network serving its dense, data-intensive customer base with GTE’s national footprint, advanced data communications capabilities and long-distance experience,” said the companies.
“The transaction also creates one of the world’s premiere wireless communications companies and combines two companies with extensive and complementary international assets.”
The combined company would have about 20 percent of the estimated 50 million wireless telephony customers in this country. Its 10.6 million wireless subscribers and 100 million population equivalents covered would make it the largest domestic cellular carrier, according to Standard & Poor’s Corp., New York.
“This is a customer driven transaction. Our customers think we all ought to be moving faster than we are,” Seidenberg said at the press conference.
“Wireless services are exploding. Consumers want more broadband (wireline) access. The customers are moving faster than we are.”
Many issues will be raised and must be resolved with respect to the planned merger, including the status and disposition of certain cellular and personal communications services properties.
“From a consumer perspective, the only chance of monopoly dominance (in some markets) would be in wireless, so there is the possibility [Bell Atlantic and GTE] will have to divest some properties,” said Martin Dunsby, senior manager of telecommunications practice for Deloitte & Touche Consulting Group LLC, Atlanta.
Pat Martin and Simon Reeves, analysts for Decision Resources Inc., Waltham, Mass., characterized the overlap between the two companies’ cellular properties as “relatively modest.” These comprise a population of about 725,000 in and around El Paso, Texas. and another 167,000 in the Las Cruces, N.M., environs.
“The PCS holdings are more problematic. Both PrimeCo (Personal Communications L.P.), the nationwide alliance of which Bell Atlantic owns 50 percent, and GTE’s [personal communications services] holdings overlap each other’s territories. However, (because) both companies chose [Code Division Multiple Access], their PCS air interface technologies are compatible, unlike the SBC-PacTel-Ameritech potpourri.”
The GTE-PrimeCo overlap comprises a population of more than 15 million, including: the Texas cities of Austin and Houston, nearly four million; the Florida cities of Fort Myers, Lakeland and Tampa, nearly 3.5 million; the Virginia cities of Newport News and Norfolk, nearly 1.5 million; Honolulu, about 890,000. The remainder are in other areas of Alabama, Florida, Hawaii, Indiana, Texas and Virginia.
“In our wireless business, the overlaps in our core cellular business involve less than 1 million customers. As for the other overlaps, there are opportunities to solve this with minimal activity,” Lee said.
The merged company would be in violation of the Federal Communications Commission 45 MHz spectrum cap where Bell Atlantic wireless markets overlap GTE markets, said John M. Bensche, senior wireless analyst for Lehman Brothers Inc., New York.
Selling sufficient GTE cellular markets to comply with the cap, possibly to another CDMA carrier like Alltel Corp., is one option. But Bensche called this idea “the most costly way.”
The second problem is that the PrimeCo PCS partnership agreement, which Bell Atlantic and AirTouch Communications Inc. signed, includes a prohibition against partners buying wireless properties in each others’ markets through 2001. At that time, the 1994 agreement calls for PrimeCo and its non-competition clause to be dissolved by allocation of its assets to its partners.
Bensche said Lawrence Babbio, chairman of Bell Atlantic’s Global Wireless Group, told securities analysts the simplest solution to the spectrum cap and overlap issues would be to accelerate the dissolution of PrimeCo. Simple, yes. Easy? Maybe not.
“Certain key facts relating to the AirTouch/Bell Atlantic partnerships are a matter of public record,” said Kathy Reinhart, director of investor relations for AirTouch, in a statement released July 31. It referred both to the PrimeCo partnership and another, TOMCOM, described as “a technical, operating and marketing partnership.”
“The TOMCOM and PrimeCo agreements contain a number of restrictions on the partners’ activities outside the partnerships, [one of which] prohibits either partner from acquiring a cellular, [Enhanced Specialized Mobile Radio] or PCS system in a service area where the other partner has a interest. [It also] requires that the acquiring partner dispose of the conflicting property within six months.
“Both agreements contain transfer restrictions and prohibit partners from withdrawing from the partnerships. Any decision to dispose of PrimeCo assets requires the approval of both partners.”
The AirTouch statement did not indicate any planned course of action, and instead said the merger announcement was just announced, “and it is early in the process.”
