Tracking Wireless' Stock Surge

A year ago, if you had suggested to analysts that by 2000, major carriers would not only be granting their wireless units unprecedented independence but also issuing tracking stocks, you likely would have received a "what-are-you-kidding-me?" answer. Back then, the strategy was to show investors that the wireless division was an extension of a larger communications body, replete with tentacles reaching into every market, from ISPs to cable TV.

What a difference a year makes. Major carriers such as AT&T are gearing up to make their wireless divisions independent players whose forthcoming tracking-stock IPOs are potentially worth billions of dollars. In fact, wireless properties are so hot that for a carrier not to let its wireless unit spread its wings on Wall Street is now the silly question.

As recently as November 1998, AT&T reportedly was toying with the idea of issuing a separate class of stock tracking its massive cable TV holdings, with its wireless business attached. Company officials now say that they were waiting for the wireless venture to get its legs. Hence AT&T's recent announcement that it will offer a separate stock that tracks its new AT&T Wireless Group, which will include all of AT&T's mobile and fixed-wireless technology and its 850MHz, 1.9GHz and 38GHz licenses. AT&T's international wireless operations also will be included in the group and the tracking stock. About 20% of the mobile unit is expected to be sold on the market.

Analysts expect the spring IPO to net AT&T $10 billion, making it the most profitable stock offering in U.S. history.

"It's a hungry market," said John Byrne, Paul Kagan & Associates industry analyst. AT&T stock has struggled over recent months as Wall Street waits to see how the company's massive cable investment pans out. That makes separating out the wireless stock a logical move, Byrne said.

The phenomenal success of Sprint PCS' stock no doubt influenced AT&T's decision to issue a wireless tracking stock. Last month, Ed Whitacre, SBC chairman, acknowledged that his company is considering a similar move. Analysts anticipate that other national and regional carriers such as Bell Atlantic and BellSouth will follow suit.

"These companies have both the best of the old telecom and the new telecom within their portfolios," Byrne said of AT&T and SBC, his picks for the next wireless tracking-stock offerings.

The slow-but-steady convergence of wireless and the Internet also makes the timing right.

"We'll bring together the two great revolutions in communications: untethered connections and the Internet," said John Zeglis, AT&T president and newly appointed head of the wireless group. "The extraordinary convenience of blending information and personal mobility will put the Internet in people's pockets as we make wireless data service as popular and easy to use as wireless voice service."

Dan Hesse remains president & CEO of the AT&T Wireless Services mobile unit but also becomes executive vice president in charge of developing and launching fixed-wireless service in markets where AT&T's cable services aren't yet available.

Another driver for AT&T, analysts say, is the potential success of its on-again, off-again fixed-wireless plan, Project Angel, which has been re-christened AT&T National Wireless Local Exchange Carrier. Initially believed to be a way for AT&T to thumb its nose at LECs while building out a ubiquitous national network, the initiative now is concentrated on delivering data at speeds as high as 1Mb/s. The approach involves a residential base station that allows users to use cellular-like cordless with no per-minute airtime charges. The unit reportedly will cost AT&T about $750 per household to install. A $350 million debut, covering 1.5 million homes in Fort Worth, TX, and two other unidentified cities, is slated to begin this spring, according to the company.