It is a match made in heaven. BellSouth Corp. and SBC Communications finally ended weeks of speculation, announcing plans to create a wireless joint venture that will become the second-largest wireless operator in the United States, serving 16.2 million subscribers and reaching 175 million potential customers.
And, with the exception of two overlapping markets the companies will have to divest, the union is a perfect fit, analysts and company executives noted last week.
“SBC and BellSouth have similar visions for the future of the industry, similar approaches to wireless business and similar values,” Ed Whitacre, SBC chairman and CEO told reporters last week. “And that adds up to sharing complete confidence in one another.”
An extensive footprint, more than 15,000 points of distribution presence and compatible technology all make the joint venture painless for both companies. Moreover, the deal won’t negatively impact either companies’ earnings, and analysts say this national footprint will create higher shareholder value, faster revenue and EBITDA growth.
“The only negative about this merger is that it took them this long to come out of denial to say they needed a to get a larger footprint,” said Bob Egan, director of research with the Gartner Group in Stamford, Conn.
The expected union will put more strain on AT&T Wireless Services Inc., which is spending billions on acquisitions and network buildout to achieve a truly nationwide footprint. Verizon Wireless, the new joint venture between Vodafone AirTouch plc, Bell Atlantic Mobile and GTE Corp., displaced AT&T as the largest wireless operator with 24.5 million customers. And BellSouth and SBC push AT&T to third place. AT&T supports about 12.6 million customers.
AT&T Wireless began the war for the high-end customer in 1998, introducing its Digital One rate plan. Since then, operators have worked to position themselves to offer similar plans.
Verizon last week introduced a more aggressive flat-rate pricing plan with a better footprint and more subscribers, noted Egan. BellSouth and SBC will be aggressively targeting the same customers with voice and data services. BellSouth’s Wireless Data division already has a strong presence in the enterprise market. And existing nationwide competitor Sprint PCS is better positioned than all wireless carriers with its Wireless Web service, having launched nationwide Web access last summer, said Egan.
AT&T offers flat-rate data services to business customers via its Cellular Digital Packet Data network and offers two handsets.
“There’s clearly an attack on AT&T’s dominance in the business segment,” said Egan. “There’s another sheriff in town that will drill down marketing costs while eliminating costs to keep traffic on the network.”
Now that BellSouth and SBC are aggressively attacking the high-end market, it’s unclear what effect their merger will have on roaming rates they extend to AT&T. All three companies have historically cooperated on a number of business initiatives.
BellSouth and SBC said the two companies will likely begin steps to fill in the holes of the new network through more acquisitions and possibly bidding in upcoming spectrum auctions. The joint venture doesn’t cover New York City and several Western markets. The companies haven’t ruled out an initial public offering for the joint venture, which the companies hope to complete at the end of the year.
Both BellSouth and SBC will have equal control of the joint venture, though SBC will own 60 percent of it. The combination does not include other services like local telephone service or Internet access. They will continue to compete against each other in about 30 markets. But the two companies will have the largest wireline to wireless overlap of any carrier in the United States, and the deal was constructed to specifically allow both companies to sell wireless products bundled with other services they offer.
BellSouth and SBC have launched a national search for a chief executive officer for the new joint venture. The company’s new name will be announced in the coming weeks.
