Pacific Telesis Will Split Up to Spur Growth
Pacific Telesis Group, parent of the state’s largest telephone company, said Friday that it will split off its conventional phone operations from its newer telecommunications ventures to reduce government oversight and spur the growth of both businesses.
The result would be two separate telecommunications companies that could enter businesses that have been off limits under the antitrust provisions that broke up American Telephone & Telegraph Co. in 1984 and created Pacific Telesis and the six other regional Bell companies.
Analysts said the split poses a striking model for the other Baby Bells and could spark similar moves over the next year.
Under the plan announced by Chairman Sam Ginn, Pacific Telesis will spin off its high-tech communications operations, including its cellular and paging businesses, into a separate company--tentatively called PacTel Corp.--that would be free to pursue the exploding opportunities for new wireless communications domestically and internationally.
Pacific Telesis’ longtime monopoly telephone companies, Pacific Bell and Nevada Bell, as well as the Pacific Bell Yellow Pages, will remain unchanged. The split is expected to take a year to complete.
Although the move is designed to unleash tremendous changes in the future of both businesses, Ginn stressed that there will be little, if any, immediate impact on Pacific Telesis’ nearly 62,500 employees or its estimated 10 million business and residential customers in California and Nevada. Pacific Telesis shareholders will receive one share of stock in the new company for each share they now own.
Consumer advocate groups generally supported the plan but urged regulators to scrutinize it closely. They said telephone ratepayers--as well as shareholders--should be compensated if any of their money was used to establish new ventures that will be spun off.
However, a few analysts expressed concern that the breakup could lead to higher rates for residential phone customers and a telephone network that could not be upgraded to keep pace with advancing technology. These critics said the phone companies would be giving up fast-growing markets in new technology at a time when their basic business is up against intense competition.
The result, these analysts said, might be higher monthly service charges and a potential decline in the quality of the phone company’s network because of falling profits.
The breakup, Ginn said, will be like splitting apart a family that has thrived for years. But, he said, it is a necessary move if each part of the group is to reach its potential.
“Our industry is going through a revolution,” Ginn said. “Much of what drives this decision is what you believe about the future, not the past.”
Despite the scope of the split, Ginn said it should not require approval from government regulators, including the California Public Utilities Commission and the Federal Communications Commission, or Judge Harold Greene, the federal jurist who has overseen operations of the regional telephone companies since their divestiture from AT & T in 1984.
Still, regulators promised Friday to take a close look at the plan.
Ginn, who proposed the division in April, said it is the most logical solution to the competing and often contradictory regulatory and financial constraints facing the Bell holding companies at a time of unprecedented technological change and exploding international business opportunities.
Under current and proposed state and federal regulations, Pacific Telesis is limited--and in some cases prohibited--from pursuing technology ventures because of its ownership of the monopoly telephone company.
At the same time, the company’s cellular and other experimental ventures are restricted from raising the money they need to grow because significant debt could restrict the local phone companies’ ability to provide service.
Further, under proposed federal regulations, phone companies with cellular operations could be prohibited from winning franchises to offer a new wireless “personal communication service,” a technology being tested by dozens of potential providers.
At the center of the new company will be PacTel Cellular, one of the nation’s largest providers of cellular service with more than 534,000 subscribers, and PacTel Paging, which has more than 474,000 customers. Last year, the company’s cellular operations generated profits of $114 million on revenues of $580 million.
Ginn, 55, said he will leave Pacific Telesis to become chief executive officer of the new company. C. Lee Cox, now president and CEO of Pacific Telesis’ high-tech ventures, will join him as president.
On the other side will be the local telephone companies, which had profits of $1 billion on revenues of $8.6 billion. Philip J. Quigley, now president and CEO of PacBell, will head Pacific Telesis.
Combined, Pacific Telesis had profits of $1.02 billion on revenues of $9.9 billion in 1991.
The spinoff is different from the one proposed by Ginn eight months ago. Then, he suggested splitting the company’s telephone operations into a separate corporation. However, he said that after study, the company concluded that it is easier to spin off the cellular and high-tech businesses.
And, analysts noted, the proposal--under which the phone company remains under the Pacific Telesis umbrella--is less likely to run into obstacles from regulators concerned about the company’s monopoly telephone franchise.
Patricia Eckert, a member of the Public Utilities Commission, said the board had been briefed in advance about the split and offered no resistance. However, she said that while a stock spinoff of the wireless operations might not require the commission’s approval, other aspects of the deal could require a closer look.
Ginn said Pacific Telesis will cooperate with all requests from regulators for information, although he stressed that the company believes that regulators cannot prevent the split.
AT & T officials said the move is “a dramatic affirmation of the appropriateness of a telecommunications industry structure that separates local telephone monopolies from competitive businesses.”
The Pacific Telesis Breakup
In an unprecedented move designed to free its dynamic new businesses from the grips of regulators, Pacific Telesis announced that it will spin off its unregulated telecommunications ventures into a new company, PacTel Corp., while keeping its traditional regulated telephone operations. Here is what the two companies formed by the breakup will include:
Pacific Telesis
Chief executive: Phil Quigley, 50, current president and chief executive of Pacific Bell.
Primary businesses: Local phone companies, Pacific Bell and Nevada Bell, and Yellow Pages.
PacTel Corp.
Chief executive: Sam Ginn, 55, current chairman and chief executive of Pacific Telesis.
Primary businesses: Wireless communications, including PacTel Cellular, PacTel Paging, PacTel Teletrac (vehicle tracking); PacTel Cable (Britain only), and Pacific Telesis International (Germany, Japan, Portugal, South Korea, Thailand, France and Spain).
Potential businesses: Electronic Yellow Pages, classified ads, entertainment, news, medical X-ray viewing by phone, cable television.
