A Merger for SBC & BellSouth?

Are BellSouth and SBC planning to merge their wireless units? Neither company would comment, but one potential clue is that in late February, SBC reversed its decision to issue a tracking stock for its wireless operations.

The merger would make sense: Both networks rely heavily on TDMA or GSM, two standards that are being melded into a common platform via an agreement between the GSM Alliance and the UWCC. SBC Wireless also has CDMA networks in some markets via its purchase of Ameritech, but it has begun removing that equipment and replacing it with TDMA.

Combining their coverage areas would create a near-nationwide footprint to rival those of AT&T Wireless and Sprint PCS. Although BellSouth has publicly maintained a go-it-alone wireless strategy, it has pursued licenses and partnerships aggressively in Europe and South America, and marketing its wireless-data services nationwide has helped build its brand outside the Southeast. The new company would begin with roughly 16.5 million subscribers, or about 2 million fewer than AT&T Wireless and Sprint PCS combined.

"It's a critical necessity," said Andrew Cole, Renaissance Worldwide principal. "If they left it too much longer, (both companies) would have been in an awful situation. In our opinion, it's really one of their only options."

Merging just their wireless operations also should help avoid concerns about a single company controlling such a large share of the wireline market. Cole gives the merger a 75% chance of happening and "very good" odds of winning FCC approval.

"If they're going to approve the Bell Atlantic-AirTouch-GTE merger, they'll approve this," Cole said. Some licenses might have to be shed to get back under the spectrum cap, but that doesn't look like a deal-breaker.

If the merger does happen, expect it to prompt another round of industrywide consolidation and price erosion — two ongoing trends that likely brought BellSouth and SBC to the table in the first place.