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 outperformed its former parent by pushing ahead in the fast-growing global marketplace largely out-of-reach to Pacific Telesis unit Pacific Bell.

But the proposed merger of SBC Communications Inc.--a power in cellular--and Pacific Telesis is expected to heighten competition with AirTouch.

Since breaking away from PacTel, AirTouch has emerged 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.

Domestically, 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 Chairman Sam 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.”

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Ginn had been chairman of PacTel before the 1994 spinoff of its wireless services.

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.

Analysts said that the scenario may change somewhat with PacTel’s proposed merger with SBC, a company known for its efficient distribution of wireless services.

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 attact new customers,” he said.

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AirTouch, formerly known as PacTel Cellular, was spun off from Pacific Telesis in 1994. At the time of the spinoff, there were suggestions that Ginn, 59, was taking the best parts of the parent company with him to form AirTouch.

As PacTel faced the prospect of losing its independence Monday, analysts said Ginn’s choice was a smart one.

“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.

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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 increase 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.