THE SPINOFF : AirTouch Likely to Face Heightened Competition From Former Parent
AirTouch Communications, the cellular phone company spun off from Pacific Telesis Group two years ago, has prospered even as its former parent has stumbled--lending credence to the argument that former PacTel chairman Sam Ginn, now chairman of Airtouch, got the best of that controversial deal.
But the proposed merger of SBC Communications Inc.--a power in cellular--and Pacific Telesis is certain to make life more difficult for AirTouch, with the new entity investing heavily in a range of wireless communications services.
Since breaking away from PacTel, AirTouch has taken steps to build a nationwide wireless network through alliances with other Baby Bells. It has formed a joint venture with US West’s cellular operations. In partnership with US West, Nynex and Bell Atlantic, AirTouch is building a personal communications services network that would complement its cellular system.
AirTouch has also done well overseas, emerging as the No. 2 cellular phone company in such promising foreign markets as Germany, Italy and Japan. More than two-thirds of the customers AirTouch is licensed to serve are located outside the United States.
Ginn on Monday declared in a statement that the merger of his former parent, PacTel, with SBC was an “endorsement” of AirTouch’s belief that “scope and scale are important to provide national services to our customers.”
Analysts said that AirTouch has been able to outperform its former sister company, Pacific Bell, because it is focused on wireless communication, a largely unregulated and fast-growing side of the telecommunications business. Pacific Bell’s network, on the other hand, isn’t growing and faces increased competition in its formerly protected local markets from long-distance companies.
But the proposed merger will help give PacTel another chance at wireless communications. SBC is known for its efficient operation of cellular franchises, and the combined companies will move aggressively to exploit the licenses for personal communications services--a rival to cellular--that PacTel won in a federal auction last year.
As the merged company brings its personal communications services on line, it “will force AirTouch to become more competitive,” said Thomas Friedberg, a telecommunications industry analyst with Genesis Merchant Group Securities in San Francisco.
“It will make it more difficult for AirTouch and LA Cellular [another cellular phone company] to attract new customers,” he said.
AirTouch, formerly known as PacTel Cellular, was spun off from Pacific Telesis in 1994. Ginn’s choice to do the spinoff in the first place and then leave for the new company has certainly served him well.
“I think it is pretty clear that structurally Sam Ginn saw that wireless communications had stronger growth opportunities going forward,” analyst Friedberg said.
“I think he saw what the land-line business was going to be in California, in a state with a draconian regulatory structure and with PacBell defending its network in a densely populated area that is attractive to competition,” he said.
AirTouch reported 1995 revenue of $1.59 billion, up 29% from 1994. Net income gained 34.5% to $132 million.
The company’s stock market value has increased to about $16 billion from $11 billion in 1994.
Its shares closed at $31.375 Monday, up 25 cents in trading on the New York Stock Exchange.
