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Wireless talks continue
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January 4, 1999: 3:52 p.m. ET
$45B Bell Atlantic-AirTouch merger seen offering economies of scale
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NEW YORK (CNNfn) - Shares of Bell Atlantic Corp. and AirTouch Communications Inc. took a hit Monday, after the telecommunications firms confirmed they are discussing a possible merger that would significantly strengthen their position in the competitive wireless industry and possibly result in lower costs for consumers.
The $45 billion stock deal would combine Bell Atlantic's 5.7 million wireless customers, primarily on the East Coast, with AirTouch's 7.8 million clients in the western United States, transforming the regional Baby Bell into the second largest wireless company behind AT&T Corp (T).
Both companies confirmed the merger talks Sunday, but said they would have nothing further to say until they reach a definitive agreement or break off talks.
Analysts say the merger would result in economies of scale that could translate into lower costs and increased convenience for wireless customers. Bell Atlantic (BEL) could use the AirTouch network -- rather than paying a separate carrier -- to service its customers when they travel to the West Coast and vice versa.
"We have already seen 10 cents a minute for the combination of long-distance and wireless. I wouldn't be surprised if in a couple of years we see that decline to 5 cents a minute," Philip Sirlin, an industry analyst at Schroder and Co., said.
Sirlin shrugged off concerns the combination will reduce competition.
"I think that if the government does its job, competition will stay a major force and prices will stay low," he said.
Other telecom watchers say the merger would create a stronger competitor for AT&T and Sprint PCS (PCS), which already offers consistent rates across the nation thanks to its nationwide network. The merger would also put pressure on MCI WorldCom (WCOM), which doesn't yet have wireless properties, and would give Bell Atlantic a new foothold overseas. AirTouch (ATI) has a significant presence in Europe and Asia.
The acquisition, however, could have an adverse impact on the company's short-term earnings.
"Investors are looking for Bell Atlantic to earn a certain amount next year and, if they acquire AirTouch, that amount would be reduced probably by at least 10 percent and investors don't like earnings surprises," Bob Wilkes, telecommunications analyst for Brown Brothers Harriman, said.
AirTouch stock was down more than 4 percent or 3 to 69-7/16 in afternoon trading, while Bell Atlantic shed 3 percent or 1-11/16 to 52-5/16.
GTE deal complicates acquisition
The potential acquisition of AirTouch is complicated by Bell Atlantic's existing $52.8 billion agreement to merge with Irving, Texas-based GTE Corp. (GTE)
Two major acquisitions by Bell Atlantic will certainly get close scrutiny by federal antitrust regulators, and analysts expect the newly merged company will have to sell some of its operations in areas where AirTouch and GTE services overlap, like San Francisco. But such divestitures are expected to be small and not a hardship for the new larger Bell Atlantic.
However, GTE must approve any deal between Bell Atlantic and AirTouch. GTE is playing an active role in negotiations and is conducting its own due diligence, or examination of the proposed deal, sources said.
GTE has much influence in the talks, since GTE Chairman Charles Lee would be chairman of the combined GTE-Bell Atlantic and share the chief executive post with Bell Atlantic's Ivan Seidenberg, who would also be president.
The GTE-Bell Atlantic deal remains subject to approval from the U.S. Justice Department and Federal Communications Commission. 
-- from staff and wire reports
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