Pacific Telesis Considers Spinning Off Phone Companies
Apr. 17, 1992
SAN FRANCISCO (AP) _ Pacific Telesis Group, formed eight years ago in the breakup of AT&T, is now considering a breakup of its own - splitting off its traditional local phone businesses from its newer, faster-growing operations.
The company, if it goes through with the idea, would become the first ''Baby Bell'' to spin off operations to adapt to the changing telecommunications industry.
PacTel cited those changes as well as regulatory constraints on it and other companies spun off from American Telephone and Telegraph Co. as reasons for studying a possible corporate split.
Analysts welcomed a spinoff.
''I think it's a terrific idea,'' said Daniel P. Reingold, a telecommunications analyst with Morgan Stanley & Co. in New York. ''It's a very logical and, I think, very smart proposal on the part of the company.''
Pacific Telesis said Wednesday it would study the issue.
A spinoff would free PacTel's cellular, paging and international telecommunication operations from the heavy regulations imposed on its local telephone companies but affecting the entire corporation, analysts said.
It also could boost stock values and offer stockholders looking for different kinds of investments a choice, analysts said.
''I think from a shareholder's standpoint it's a good thing,'' said Charles W. Schelke of Smith Barney in New York. ''The sum of the parts is worth more than the whole.''
Pacific Telesis, based in San Francisco, has more than half a dozen subsidiaries. The largest is Pacific Bell, which provides local phone service to more than 22 million Californians. Another, Nevada Bell, provides service to about 230,000 phone lines in the Reno-Carson City area.
Another, Pacific Bell Directory, publishes phone directories in California and Nevada. Those three subsidiaries account for more than 90 percent of PacTel's revenue.
PacTel said it would undertake an ''in-depth analysis'' of separating the three Bell companies from other operations.
Those include PacTel Cellular, one of the nation's largest providers of cellular service with more than 534,000 subscribers, and PacTel Paging, one of the biggest paging companies with more than 474,000 units in service.
Pacific Telesis also owns Pacific Telesis International, which manages, operates and invests in telecommunications businesses overseas, including Germany, Britain, Thailand, Korea and Japan.
Last year the company had profit of $1.02 billion, $2.58 a share, on revenues of $9.9 billion.
There is no specific proposal for a split, said PacTel spokeswoman Tricia Palermo. The study, expected to take several months, simply examines various legal, financial and regulatory issues, the company said.
Sam Ginn, PacTel's chairman and chief executive officer, noted Wednesday that the company has been profitable. But he said it also recognizes the ''enormous technological, economic, competitive, political and regulatory changes occurring in the telecommunications industry'' and the need to respond to them.
Analysts agreed that regulations imposed on regional phone companies are hampering PacTel's other operations.
''Everything that PacTel does, whether it's part of its regular telephone companies or not, is constrained in some way or another by state regulations, federal regulations, or most importantly, the AT&T divesture decree,'' Reingold said.
PacTel can't offer cellular customers long-distance service because the decree bars all Baby Bells from long-distance operations. PacTel and other Baby Bells also can't make or sell telecommunications equipment.
Ginn also said - and analysts agreed - that financial markets tend to favor more focused corporations and that Pacific Telesis' stock has been undervalued.
PacTel's stock closed Thursday at $41.75 on the New York Stock Exchange, up $1.75 a share from Wednesday.
Making cellular, paging and international telecommunications operations a separate corporation would ''unmask'' their value, Reingold said.
Cellular business, here and overseas, is becoming a valuable part of PacTel but has so far diluted earnings because it is still a startup operation, he said.