AT T Cellular Contract Threatends Baby Bells

Article excerpt

N.Y. Times News Service

WASHINGTON _ Few companies may be more threatened by American Telephone and Telegraph Co.'s $12.6 billion pact to buy the nation's biggest cellular carrier than the seven regional Baby Bell telephone companies.

But just when it might be worth putting up a united front, the Bells, including Southwestern Bell Telephone serving Oklahoma, are deeply split over how to respond _ and in some cases seem to be working at cross-purposes.

They also disagree on technical issues, and that could make it hard for them to match AT T on advanced new services.

AT T's pending takeover of McCaw Cellular Communications Inc., announced last week, would effectively create a nationwide wireless network that provides formidable new competition to existing cellular operators.

The seven Bells, which rank among the nation's 10 biggest cellular companies, have the most to lose. Down the road, the combination of AT T and McCaw could use wireless technology to make deep inroads into the Bells' basic local telephone business.

Industry executives say Bell Atlantic Corp. is trying to forge a nationwide consortium for advanced wireless services and may be close to an alliance with BellSouth Corp. and many independent telephone companies.

People familiar with the effort say Bell Atlantic hopes the consortium will bid on new radio licenses for "personal communication services," a sector that ranges from pocket telephones, advanced paging and data communications to hand-held computers.

The Federal Communications Commission hopes to auction the new frequencies some time next year, and the new services are expected both to complement and compete with cellular telephones.

Yet most of the Bell companies seem either indifferent or hostile to the idea of allying against their former parent. Indeed, several of them seem bent on raiding one another's territories in search of new wireless customers.

"It's been our position for several years that the biggest enemies of the regional Bell companies are going to be the regional Bell companies," said Berge Ayvazian, a telecommunications analyst at the Yankee Group, a Boston-based market research firm. "Telephone operators have more of a common interest with local cable television operators than they do with each other."

Executives at some Bell companies say they are too constrained by legal restrictions to enter a tightly knit nationwide alliance. Others are chasing separate deals with cable television companies, which also hope to provide personal communications services.

These new services are expected to compete against traditional cellular phones, but will potentially offer much greater potential in sending images and data over the air waves.

Finally, some of the Bells have been snapping up cellular businesses and related businesses in one another's territories and have become poised to compete head to head with one another.

That could be dangerous for the Bells and for GTE, the large independent telephone holding company that is comparable in size to a Bell and is also one of the top 10 cellular companies.

Phone companies face two major threats from a merger of AT T and McCaw, which owns cellular systems that cover 35 percent of the nation's population.

The first threat is to the cellular market share of the Bells and GTE. The combined force of AT T and McCaw would present a unified rival with the deep pockets and geographic reach to roll out advanced wireless services with military precision across the country.

Over the longer term, if wireless phones begin to replace many traditional wired telephone lines, AT T could eventually reach its customers without paying billions of dollars in access charges to local telephone companies. That would deprive the Bells and GTE of their biggest and most profitable source of money, a potentially crippling blow. …