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Baby Bells talk wireless tie
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March 1, 2000: 2:13 p.m. ET
SBC, BellSouth shares climb as firms are said to discuss possible alliance
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NEW YORK (CNNfn) - Regional phone companies SBC Communications Inc. and BellSouth Corp. are discussing a possible joint venture that would merge the companies' wireless assets, creating the nation's No. 2 wireless phone concern, according to a source with knowledge of the discussions.
The alliance, a subject of speculation since last week, would form an expansive wireless network able to compete head-to-head with current industry leaders AT&T Corp., Bell Atlantic Corp. and Sprint PCS, which are racing to develop national networks of their own.
San Antonio-based SBC currently has about 11.2 million wireless customers, located primarily in the Southwest, Midwest and California, while Atlanta-based BellSouth boasts 5.3 million customers in the Southeast. But both companies have come under shareholder pressure recently to increase their national footprints to keep pace with other wireless suppliers.
Analysts said the two companies would be a natural fit because they use similar digital technologies and their current operations don't overlap.
 "National players have been growing share rapidly because consumers have a perception that [they] ... have a real advantage," Legg Mason telecommunications analyst Michael Balhoff told CNNfn's In the Money. "So the regionals like SBC and BellSouth have to respond."
Investors like deal
The source said the discussions still are in the preliminary stages, and any deal likely is at least two weeks away. Both companies declined to comment on the speculation.
Still, shares of both companies climbed Wednesday as investors pondered the possible joint venture.
SBC (SBC: Research, Estimates) closed up 4-1/4 at 42 Wednesday, while BellSouth (BLS: Research, Estimates) closed up 2-7/16 at 43.
"I think this would be a pretty good combination," said Dan Gillespie, senior portfolio manager for the Rydex Telecommunications Fund, which counts both SBC and BellSouth among its top holdings. "They have some great synergies and they definitely would be able to compete with AT&T and Sprint (PCS: Research, Estimates)."
Speculation of such a deal surfaced last Friday when Credit Suisse First Boston analyst Daniel Reingold said an SBC executive told him the company was pursuing a joint venture with BellSouth, hoping to develop a national wireless network that could compete with AT&T Corp.'s (T: Research, Estimates) Digital One Rate Plan.
AT&T currently operates the nation's largest wireless network, with roughly 12 million customers nationwide. However, Bell Atlantic Corp. (BEL: Research, Estimates) and Britain's Vodaphone AirTouch PLC recently signed a pact to merge their wireless operations, creating a network that would leapfrog AT&T with 20 million customers nationwide.
Customers increasingly demand national coverage
Wireless companies have made a strong push to grow their national footprints in recent months because customers are increasingly demanding coverage that does not include "roaming" charges outside their home markets.
 Both BellSouth and SBC have seen their stocks suffer in recent months as investors clamored for more expansive wireless networks.
Even with its gains early Wednesday, BellSouth is more than 17 percent below its 52-week high, while SBC has declined more than 30 percent.
But Balhoff said the proposed combination would address many of investors' concerns. (296K WAV) (296K AIF).
Still, SBC/BellSouth would have many noticeable holes, most notably in Northeast territories such as New York, as well as along the West Coast. But Cynthia Motz, a wireless analyst with Credit Suisse First Boston, said consolidation in the industry is only beginning.
"There are going to be several telecom titans, and we include SBC and BellSouth among them," she said. "We think that any expansion of national footprints is a very, very good thing." 
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