Baby Bells get thumbs up
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August 30, 2000: 2:27 p.m. ET
SBC, BellSouth must divest wireless assets for merger approval from Justice
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NEW YORK (CNNfn) - SBC Communications Inc. and BellSouth Corp. Wednesday won U.S. Justice Department approval to create the second-largest U.S. wireless-phone carrier, after agreeing to sell overlapping properties in 16 markets serving 20 million people.
The companies agreed with Justice Department requirements to divest wireless operations in markets that include Los Angeles, New Orleans and Indianapolis. The transaction, which the companies expect to close in 2001, still requires approval from the Federal Communications Commission.
"Today's action by the department ensures that this joint venture will not reduce competition in these local markets," said Assistant Attorney General Joel I. Klein, head of the department's antitrust division. Without the divestitures being required, customers "would have had fewer choices and would've faced the risk of higher prices and lower quality service."
SBC and BellSouth in April agreed to combine their wireless operations in a joint venture to reach 70 percent of the nation and own networks in 19 of the top 20 markets. Combined, the companies will have 17.9 million subscribers -- mostly in the West, Southwest and Southeast -- putting their venture in the No. 2 slot just behind Verizon Wireless, part of Verizon Communications (VZ: Research, Estimates), which has 25.4 million subscribers.
SBC will own 60 percent of the new venture and BellSouth, which provides local-phone service in nine states stretching from North Carolina to Florida, will own the rest.
The ownership percentages are based on the value of the assets each company is contributing to the venture. The new company's earnings will flow back to its parent companies in the same proportion. The alliance is expected to generate more than $10 billion in annual revenue.
In July, SBC and BellSouth announced that Steven Carter will run the combined company as chief executive.
The deal comes at a critical time for both companies. U.S. wireless carriers have been rapidly expanding their operations in recent months to gain nationwide coverage and eliminate "roaming" charges for customers.
Shares of SBC (SBC: Research, Estimates) fell 38 cents Wednesday to $41.94. BellSouth (BLS: Research, Estimates) declined 63 cents to $35.94.
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