Bell Atlantic Corp. and Vodafone AirTouch PLC confirmed yesterday that they will merge their wireless operations in the United States into a new company that will be the nation's largest mobile network--the lastest move in the rapid consolidation of the industry.
The partnership will have about 26 percent of the $5 billion U.S. wireless market and will compete directly with AT&T Corp. and Sprint Corp., which control 12.6 percent and 5.7 percent of the market, respectively.
Under the new arrangement, the 20 million wireless customers of the two companies will be able to make calls from nearly anywhere in the country without paying "roaming" charges for being outside their service area.
Bell Atlantic will have 55 percent ownership in the new company, which is to be based in the New York area, while Vodafone will get 45 percent ownership in exchange for its $15 billion wireless network. The deal involves no cash. Bell Atlantic will select the company's first chief executive and will control a majority of seats on the board of directors.
The venture--which will have a combined $28 billion in assets--gives Vodafone, the world's largest mobile phone provider, the kind of coast-to-coast coverage the company has been seeking since it acquired San Francisco-based AirTouch Communications Inc. in January. Bell Atlantic, one of the Baby Bells created by the breakup of AT&T 15 years ago, is in the process of acquiring GTE Corp.
Yesterday's announcement came a day after VoiceStream Wireless Corp. agreed to pay $2.96 billion in stock for Aerial Communications Inc. in its quest to build a national wireless network. And last week, AT&T entered into an international wireless venture with British Telecommunications PLC.
With Vodafone and Bell Atlantic getting together, "you're really going to have a juggernaut," said Michael J. Balhoff, managing director of investment firm Legg Mason Wood Walker in Baltimore.
"The main reason that Vodafone and Bell Atlantic are doing this is that the national providers are gaining share more rapidly" than the regional players, Balhoff said. The new company will have superior purchasing power and will be able to save in marketing and overhead costs, which in turn will benefit customers, he said.
Cheaper handsets are one likely result. In addition, the deals are likely to "put pressure on everybody" in the industry to slash prices and offer bundles of wireless, Internet and local services, as Bell Atlantic and Vodafone plan to do, said Rex G. Mitchell, an analyst at Bank of America Securities in San Francisco.
"This combination is definitely a natural fit," Ivan Seidenberg, Bell Atlantic's chairman and chief executive, said during a news conference yesterday.
The companies will combine the assets of Bell Atlantic Mobile, AirTouch Cellular, GTE Corp., PrimeCo Personal Communications L.P. and AirTouch Paging, and will cover 90 percent of the U.S. population in 49 of the top 50 markets, company officials said. The two new partners also left open the possibility of spinning off the new venture into a public company.
Vodafone and Bell Atlantic will have to divest overlapping holdings in a 3 million customer base to meet Federal Communications Commission requirements and will have to receive approval from the Justice Department. The companies say they expect the transaction to be completed in six to 12 months.
The deal is also a rapprochement between Bell Atlantic and Vodafone, erstwhile rivals in the bidding war over AirTouch in January. Vodafone won that bid for $62 million, and in the deal's wake, Bell Atlantic and AirTouch split up their wireless service joint venture, PrimeCo Personal Communications. Bell Atlantic's recent expansion includes the acquisition of Irving, Tex.-based GTE for $53 billion, which would have made it the largest wireless phone provider in the country even before the Vodafone deal.
Mel Marten, an analyst with Edward D. Jones & Co. in St. Louis, said Vodafone officials immediately approached Bell Atlantic with partnership proposals after the AirTouch purchase but Bell Atlantic's hurt feelings were getting in the way. Other analysts aren't concerned about past difficulties. "Any rumored difficulties between these two companies shouldn't be a problem at all," said Kevin Roe, a telecommunications analyst with ABN Amro in New York.
Bell Atlantic's shares rose 93 3/4 cents, to $64.56 1/2, on the New York Stock Exchange. Vodafone's U.S. shares increased by $4.62 1/2, to $216.62 1/2.
Bell Atlantic Mobile, AirTouch, GTE Wireless and PrimeCo will together have a subscriber base of more than 20 million. Here are subscribers for the major wireless companies, in millions:
AT&T WIreless 8.8
Bell Atlantic Mobile 6.6
SBC (owns Cellular One) 6.2
Bell South Mobility 5.2
GTE Wireless 5.0
Sprint PCS 4.0
US Cellular 2.4
Western Wireless 0.7
Centure Tel 0.7
SOURCE: Strategis Group