EVOLOVING WIRELESS WORLD : AirTouch, US West to Merge Domestic Cellular Operations : Deals: The union would create the nation's third-largest wireless company, with assets of $13.5 billion.

By LESLIE HELM

July 26, 1994 12 AM PT

TIMES STAFF WRITER

Joining the small club of companies seeking to become national wireless communications providers, the former Pacific Telesis subsidiary AirTouch Communications announced Monday that it will merge its domestic cellular telephone operations with those of the regional Bell telephone company US West.

The deal would create a joint operation with assets valued at $13.5 billion. It would be the nation’s third-largest wireless communications company, with franchise areas covering 53 million people, mostly in the West.

Monday’s announcement comes on the heels of a similar cellular merger announced last month by Bell Atlantic and Nynex, two East Coast regional phone companies. AirTouch was rumored to be a potential third partner to that deal. Analysts say it is now unlikely that the two coastal giants will merge, though they might reach a looser cooperation agreement.

“We have built the platform from which we are confident we can create a national presence,” said Sam Ginn, chairman and CEO of AirTouch. “Customers want wireless (phones) to work not just in their neighborhood or community, but globally.”

The complex deal calls for the two cellular companies to operate under a joint management company but remain independent until certain regulatory restraints are removed. AirTouch would own 70% of the new, Walnut Creek-based management company.

AirTouch and US West would also establish a 50-50 venture to jointly bid in upcoming Federal Communications Commission auctions for personal communications services licenses. These licenses will be used to offer a new kind of pocket telephone service.

Time Warner, in which US West has a 25% stake, may also invest in the PCS joint venture, Ginn said. AirTouch’s former sister company, Pacific Bell, announced earlier this month that it also intends to bid on PCS licenses.

The regional Bell operating companies are responding to growing competition in the wireless arena from national players such as McCaw Cellular, soon to be acquired by AT&T;, and Nextel, in which MCI Communications has a major stake.

“In telecommunications today, you have to either get big or get out,” said Herschel Shostek, head of a Maryland-based wireless communications research company. Although the new deal specifically excludes overseas cellular properties, Shostek said the new joint venture strengthens AirTouch and US West’s profile as the companies continue their expansion into international markets.

But the new coalition has obvious weaknesses at home. It has no recognizable national brand name and no position in key eastern markets such as New York.

Executives of the two companies said they will move quickly to fill in the gaps by making alliances and acquiring smaller players. US West Chief Executive Richard McCormick said the new venture’s scale will help attract new partners. Under the AirTouch-US West agreement, the two firms’ cellular operations would remain nominally separate but would be managed by a joint “wireless management company” on an “as-if-merged basis,” Ginn said. The management company would act as a sort of headquarters for both the cellular operations and the PCS joint venture, providing general direction as well as support services on a contract basis, he said.

The two operations would be merged either when US West received a waiver to the consent decree governing the 1984 Bell System break-up, or at the latest, four years from now. The consent decree prevents Bell operating companies from offering long-distance services, for example, meaning that long-distance calls from a US West cellular system must be handed off to a long-distance company. AirTouch was spun off from Pacific Telesis in part to avoid these constraints.

US West would have the right to convert its 30% share in the cellular joint venture into AirTouch common stock within 10 years after the agreement.

AirTouch stock rose 12.5 cents Monday to $26 and US West gained 62.5 cents to close at $40.87 in New York Stock Exchange trading.

* WIRING THE WORLD: A look at the global telecommunications revolution. World Report

Leading Cellular Operators

Population, in millions, of area served by the top cellular operators:

McCaw Cellular Communications (AT&T;): 66

Bell Atlantic-Nynex: 57

US West-AirTouch Communications: 54

GTE Personal Communications Services: 53

BellSouth Cellular Corp.: 45

Southwestern Bell Mobile Systems: 36

Ameritech Mobile Communications: 26