A NEW BREED OF GIANT

What many called inevitable has happened - Bell Atlantic and Vodafone AirTouch are combining their wireless properties. Despite speculation that Bell Atlantic has harbored a grudge since AirTouch married Vodafone instead of Bell Atlantic, their businesses fit together too well to resist making a deal.

The result is a powerhouse created by combining the mobile properties of Bell Atlantic, Vodafone AirTouch and GTE, which is in the midst of being acquired by Bell Atlantic. The new and separate wireless company immediately will serve more customers than the second and third largest competitors in the U.S. combined, said Charles Lee, chairman and CEO of GTE.

That size alone will offer the company immediate advantages - to the tune of $7.4 billion in synergies, said Ivan Seidenberg, chairman and CEO of Bell Atlantic.

But customers will see few immediate benefits. "Initially it will have little impact because only a small percentage of phones can roam on all those networks," said Chris Larson, wireless analyst for Prudential Securities. Although all the networks being combined use CDMA technology, they operate in different frequencies over licenses acquired in different auctions.

In addition, Bell Atlantic and Vodafone AirTouch already offered nationwide calling plans so the deal won't spur new national service plans, Larson said.

The new company also will have an advantage against competitors because of the range of services it can offer. "Really what's key here is that a lot of these big companies are starting to realize the importance of a wireless strategy as it integrates with other communications networks," said Joseph Bonocore, partner and industry director of KPMG's communications industry group.

When this deal is complete, 90% of GTE's wireline properties will overlap with the new company's wireless properties, Lee said. Bell Atlantic/GTE will focus on that bundled proposition, which can include local, wireless and high-speed data. "Nobody will be able to come close to us," he said.

This deal was particularly important for Vodafone AirTouch, which needed to fill out its U.S. footprint to boost its international position. "The U.S. is a critical component of Vodafone AirTouch's global strategy," said Chris Gent, chief executive of Vodafone AirTouch. Combining a nationwide offering with Vodafone AirTouch's extensive international wireless holdings will let the company better serve its international customers, he said.

But that might not happen for some time. Vodafone AirTouch's international properties use GSM. Handsets that allow roaming between CDMA and GDM do not yet exist. While this network disparity might slow down an immediate global roaming initiative for the new company, the introduction of third generation networks may launch it ahead of the pack. "The next generation of cellular technology throughout the world will be based on wideband CDMA, so we're already half way down the path to the next generation," Gent said.

Together with VoiceStream's recent acquisitions, the deal increases the number of nationwide operators in the U.S (see story page 10). But, AT&T Wireless - one of the original national players - still believes it's ahead. "We need to do some building, which is a whole lot easier to do than a merger," said Kendra VanderMeulen, senior vice president of product strategy and development for AT&T Wireless.