PUC Approves Pac Tel Spinoff of Wireless Unit

Pacific Telesis Group won approval from state regulators Tuesday to spin off its cellular telephone business into a separate company without making any substantial payment to ratepayers.

The decision, which came with some modest conditions, paves the way for Pacific Telesis to begin the public sale of $1.2 billion in stock, about 12% of a new company to be temporarily called Pactel Corp. The remaining shares in the new company, whose cellular, paging and vehicle-location services are valued at $10 billion, will be sold after a waiting period of several months.

Pacific Bell and Nevada Bell, highly profitable local phone companies, will remain with Pacific Telesis.

The Pacific Telesis board voted late Tuesday to proceed with the public sale of stock in its wireless business.

“The world’s financial community was watching and the PUC voted yes,” Sam Ginn, Pacific Telesis chairman and chief executive, said in a statement. “The commission sent a strong signal that California is open for business.”

Since December, the wisdom of Pacific Telesis’ breakup strategy has been called into question as other regional phone companies have taken the opposite tack, rushing to form alliances with cable and other businesses. Bell Atlantic Corp., for example, recently made a roughly $30-billion bid for Tele-Communications Inc., a large cable outfit.

But Pacific Telesis maintains that a split will free the new entity of burdensome government regulation and spur the growth of both companies because they can enter businesses that have been off limits under antitrust provisions that broke up AT&T; in 1984 and created Pacific Telesis and six other regional Bell companies.

The company has also contended that its cellular business was built with investors’ funds, not ratepayers’, and that ratepayers are thus not entitled to any reimbursement for the spinoff.

Pacific Telesis got what it wanted after three postponements in October. On Tuesday, the five members of the California Public Utilities Commission voted unanimously at their regular meeting here to allow the spinoff.

But two commissioners, Gregory Conlon and Daniel Wm. Fessler, vowed to file a partial dissent because they agreed with consumer advocates that ratepayers are owed significantly for having helped finance development of the technology that led to the now booming wireless communications.

They were dissatisfied that the PUC will require Pacific Telesis to refund only $41.3 million to Pacific Bell to cover early costs of research and development financed by telephone customers from 1974 to 1983.

Despite that and other conditions, the vote was seen as a victory for Pacific Telesis and a defeat for Toward Utility Rate Normalization, a San Francisco consumer advocacy group that had engaged in settlement discussions with Pacific Telesis. The talks broke off last week when Pac Tel decided that setting aside $1 billion or so in a compensation fund would cripple the new company’s public stock offering.

“The PUC has once again betrayed ratepayers,” said Audrie Krause, TURN’s executive director. She emphasized that TURN had never opposed the spinoff but that the group estimated that customers were entitled to $3 billion to $5 billion in compensation for funding cellular phone R&D; since the 1940s.

TURN called for the resignation of Norman Shumway, the commissioner chiefly responsible for considering the spinoff issue, saying he had not followed appropriate procedures. And the group said it will appeal the decision to the state Supreme Court. However, Krause acknowledged that the high court has not heard a PUC case in many years.

Wall Street gave the corporate split its stamp of approval. Pacific Telesis shares shot up $4.875 to close at $59.125 on the New York Stock Exchange.

Steven R. Yanis, a telecommunications analyst with the Kidder, Peabody & Co. investment firm in New York, said the spinoff is positive for investors in the near term because it has “unmasked the cellular potential” inherent in the big phone utility as it now exists.

Moreover, the surviving non-cellular company will be able to offer “personal communications services,” or PCS, for which the Federal Communications Commission plans to begin auctioning licenses next spring.

PCS is a range of radio frequencies that can be used for voice and data communications. PCS devices would operate at higher frequencies than cellular phones but be less powerful. In initial tests, they have been used by nurses, doctors and security guards within the bounds of their campuses.

In areas where Pacific Telesis had cellular operations, an undivided company would have been severely restricted in bidding for PCS licenses.

Michael Runzler, a Pacific Telesis spokesman, said the company recognizes that there will be some confusion about the names and plans to devise a new moniker for Pactel Corp. within two years.

As another condition, the PUC ordered that no shareholder be permitted to own more than 2.24% of the new Pactel entity. But the PUC added that no current Telesis stockholder would be required to unload stock to meet the limit.

The commission also ordered that Pacific Bell be required to extend Universal Lifeline service, a phone service for low-income customers, to 4 million Californians who are without phones. Public Advocates, a public interest law firm based in San Francisco, estimates that such a program will cost the company $65 million over five years.

Times researcher Norma Kaufman contributed to this story.