AT&T;, BellSouth Forge New Cellular Pact

Shaking up a decade-old cellular phone venture, AT&T; Corp. and BellSouth Corp. on Friday agreed to hand each other more control of two key markets for mobile phone service they now share.

AT&T;, the nation’s largest long-distance phone company, and BellSouth, the No. 4 U.S. local phone company, said they would form a new company to operate wireless businesses in Los Angeles and the Houston-Galveston region in Texas.

AT&T; is contributing $1 billion to the venture in exchange for increased ownership of the Los Angeles cellular system. BellSouth, the main supplier of local phone service in the South, gets control of the Houston-area properties the two now co-own.

In Los Angeles, the two owned L.A. Cellular, with BellSouth as the majority owner.

The agreement would allow AT&T; to market its successful Digital One Rate plan in Los Angeles, the second-largest U.S. cellular phone market with 15 million potential customers. The companies also said they reached an agreement on arrangements to create a seamless, nationwide wireless network based on the same technology.

“Los Angeles is extremely important to make One Rate an effective nationwide plan,” said Kevin Roe, an analyst at ABN Amro Chicago Corp. “It’s a step toward having a national footprint with the AT&T; brand name.”

One Rate offers a monthly calling plan that eliminates additional long-distance and roaming charges. When One Rate customers use the phone in areas where AT&T; doesn’t have a network, AT&T; has to pay other companies to carry the calls.

For BellSouth, it hopes the agreement would help boost profit and sales at its wireless operations.

The two companies would both continue to draw revenues and profits from supplying cellular phone service in the two cities, but AT&T; is boosting its share by contributing the $1 billion to the venture, in return getting 55% ownership versus 45% for BellSouth. The money would be used to expand the cellular phone systems, AT&T; said.

In Los Angeles, the change is triggering a string of management changes. L.A. Cellular President Hank Bonde, who came from BellSouth, will take early retirement. Chief Financial Officer Laren Whiddon will return to BellSouth. Greg Farrell, an AT&T; executive on loan as L.A. Cellular’s head of marketing, will become acting general manager at the local unit, according to Steve Crosby, spokesman for L.A. Cellular.

The deal, subject to regulatory approval, would enable each company to streamline its management and marketing in the two cities.

BellSouth’s shares rose 44 cents to close at $78.44, and ATT fell 56 cents to close at $63.81, both on the New York Stock Exchange.