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AT&T Will Buy McCaw Cellular for $12.6 Billion

August 17, 1993|CARLA LAZZARESCHI and JUBE SHIVER | TIMES STAFF WRITERS

American Telephone & Telegraph, already the world's largest telephone company, jumped to the top of the booming cellular industry Monday, announcing that it will buy McCaw Cellular in a deal valued at $12.6 billion.

The proposed merger, the fifth-largest in U.S. history, would give AT&T a firm grasp on virtually every important new information-age technology, and is part of a wide-ranging consolidation shaping up in American telecommunications.

Analysts predicted Monday that the McCaw deal would speed development of new wireless communication services--from pocket phones to hand-held "personal digital assistants"--for consumers who have already made cellular phone service the fastest growing new technology in recent memory.

Based in Kirkland, Wash., McCaw is the nation's largest provider of wireless phone service and owns half of L.A. Cellular, one of two companies serving metropolitan Los Angeles.

"AT&T has all the pieces of the puzzle now within its own operations," said Berge Avazian, of the Yankee Group, a Boston Telecommunications research firm. "And they're the only company in the nation that has put this together."

Anne K. Bingaman, who heads the Justice Department's antitrust division, said on Monday that the AT&T-McCaw deal was "under investigation," but would not elaborate on whether the examination was routine or not.

Under the Hart-Scott-Rodino Act, parties seeking to engage in mergers or joint ventures worth $100 million or more must notify the antitrust division and the Federal Trade Commission. The government can approve, negotiate to restructure the deal or sue to block it.

Three years ago, the Justice Department did not challenge a $1.25-billion deal in which the nation's No. 2 long distance company, MCI Communications Corp., purchased the fourth-largest carrier, Telecom USA Inc., but that was during the George Bush Administration.

Rep. Edward J. Markey (D-Mass.), chairman of the House Subcommittee on telecommunications and finance, called the AT&T deal "powerful evidence that the future is wireless" but added that he was concerned about a possible return to the telephone industry's monopolistic past.

"The Justice Department and Congress should review this deal with an arched eyebrow," he said, "to make certain that the market for long distance, cellular and communications equipment remains competitive, fair and benefits consumers."

James H. Quello, interim chairman of the Federal Communications Commission, said that although the FCC "must keep an open mind" to any opposition, a merger of the two companies "possesses great future potential for national and global growth."

Wall Street also reacted favorably, sending cellular stocks upward, but the proposed deal raised immediate objections from the regional Bell operating companies that AT&T was forced by court order to spin off a decade ago.

McCaw shares soared $5 to close at $56.25 in NASDAQ trading, while AT&T actually fell $1.625 to $60.75 on the New York Stock Exchange.

"This means the AT&T of 1993 will look like the AT&T of 1983, offering long-distance service, manufacturing and a substitute for local phone service," said Edward E. Whitacre Jr., chairman of Southwestern Bell Corp. "Meanwhile, our customers are disadvantaged."

The so-called Baby Bells want to be freed of many of the regulatory restrictions imposed on them in the Bell system break up, including the prohibition against their entering the long-distance phone business and manufacturing phone equipment.

They complained Monday that the proposed deal will allow AT&T to steal their local business by allowing callers to connect directly via cellular phone with the long distance network, never passing through the local system.

Huge sums are at stake. Access charges paid by long-distance carriers to local telephone companies amount to nearly 40% of the cost of providing long-distance service, and account for roughly a quarter of the $100-billion local phone industry.

Whatever the outcome, AT&T's latest proposed acquisition is another milestone in the company's transformation from a staid monopoly utility to a fast-moving enterprise on the cutting edge of "anytime, anywhere" voice and computer communications. Other milestones include AT&T's $7.5-billion purchase of computer maker NCR Corp. in 1991, and a group of smaller investments in Silicon Valley start-up operations that occurred more recently.

The McCaw deal grew from last November's announcement that AT&T would purchase a one-third interest in McCaw for $3.8 billion. AT&T Chairman Robert E. Allen and McCaw founder and Chairman Craig O. McCaw said on Monday that difficulty in coming to terms on the first arrangement led them to consider an outright merger.

"After months of trying to solve the problems, we realized that it either had to work as a total or not at all," said McCaw chief operating officer James Barksdale.

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