BellSouth and SBC are to combine their US wireless operations, creating a powerful new company to compete in the exploding wireless voice and data businesses. The new company will be the second largest wireless carrier in the United States, serving 16.2 million subscribers and reaching 175 million potential customers from coast to coast with the most robust set of services in the wireless industry. The companies, with $10.2 billion in revenues, will share joint and equal control of the combined entity.
The joint venture will allow SBC and BellSouth to achieve the scale and scope to compete aggressively nationwide, offering customers everything from wireless net access and interactive messaging, to attractive national rate plans and bundles of other services. It will pursue opportunities to expand its national wireless network. The new wireless company will have several significant competitive advantages:
*Immediate reach into 19 of the nation's top 20 markets and 40 of the top 50, reaching 70 per cent of the US population. The new company's interactive wireless reach will be nearly universal across the United States.
*Innovative data offerings, including the RIM 950 interactive pagers and Palm VII TM PDAs. America Online plans to deliver wireless AOL applications via the BellSouth Intelligent Wireless Networks.
*Distribution channels with more than 15,000 points of customer contact. The joint venture will also take advantage of new distribution opportunities with national partners.
*Compatible technologies (both companies use TDMA and GSM digital technologies) providing reliable service across the United States, which will soon allow customers to use their phones nearly anywhere in the world.
*Leadership in wireless market share.
*Financially strong wireless operations, with double-digit revenue and subscriber growth rates, and industry leading margins.
“We are combining two of the best wireless operations in the country into a stronger, more capable national competitor,” said Edward E. Whitacre Jr., SBC Communications chairman and CEO. “Our customers will soon have a more powerful wireless provider, capable of quickly rolling out state-of-the-art data services, and we will create value for our investors.”
“This is an exciting day for BellSouth and SBC. Together, we have formed the nation's premiere provider of wireless voice and data services, on a shared platform for substantial future growth,” said Duane Ackerman, BellSouth chairman and CEO.
Analysts predict wireless penetration in the US will reach 70 to 80 per cent within 10 years, up from 30 per cent today, driven by demand for wireless data and net services, increasingly competitive pricing and broader national coverage.
According to both chairmen, growth for the new venture will be fuelled by competing successfully for more high-end customers who are interested in wireless data and Internet services and from broader national coverage.
The joint venture will be capable of making acquisitions, and bidding on new or re-auctioned wireless frequencies, using its own capital structure, potentially allowing it to issue debt and stock to the public to generate additional cash to fuel its national expansion and product development efforts.
It will be a separate company with control shared by both SBC and BellSouth. Ownership in the new company will be 60 per cent for SBC and 40 per cent for BellSouth, based on the value of the assets both are contributing to the venture. Earnings for the new company will flow back proportionately to SBC and BellSouth. Both project that the transaction will not have a negative impact on their respective earnings.
"“SBC and BellSouth have known each other for years, and we've structured this company to succeed,” Ackerman said. “We've made the same decisions on technology. We share the same values, and dedication to customers. Together, we will be a competitive force in the U.S. wireless market.”
The name of the new company, its headquarters location and its chief executive officer will be announced soon. The companies are currently conducting an internal and external search for the new CEO.
Combining SBC's and BellSouth's wireless units will not affect or impede either company's ability to compete against each other for a host of other services.
“We've made a commitment to enter and compete in 30 new markets around the nation, including many of BellSouth's markets. We're going to keep that commitment,” said Whitacre. “While we're now partners in wireless, we'll continue to be competitors in every other area of our business.”
The transaction requires the approval of the Federal Communications Commission and the European Union, and the review of the U.S. Department of Justice. Divestitures of some overlapping properties will be required. The companies expect to close the transaction by the end of the fourth quarter of this year.