AT&T considering wireless-unit IPO?

NEW YORK -- As AT&T Corp. moves forward with plans to issue a wireless tracking stock, the phone company is considering an initial public offering of the shares as a way to raise capital to invest in the business, according to people close to the situation.

Such an offering could be the largest IPO ever in the U.S., raising as much as $8 billion to $10 billion for a stake of 10 percent to 15 percent of the wireless business. A spokeswoman for AT&T (NYSE:T) declined to comment.

There are two ways to issue the shares of a tracking stock. One is to distribute them directly to existing shareholders, a process that allows the market to put a value on the assets. The second option is to do an IPO of a portion of the assets and distribute the rest to existing shareholders, essentially selling a piece of the business and creating additional value.

Various scenarios are being debated within AT&T as the company moves closer to issuing the wireless tracking stock, which executives are expected to confirm when they meet with analysts in New York on Dec. 6.

Analysts are valuing the wireless tracking unit at $60 billion to $70 billion; AT&T executives have calculated that by offering 10 percent to 15 percent of the unit to the public, they could raise as much as $10 billion to invest in the cash-intensive wireless business.

By comparison, Metropolitan Life Insurance Co. said Wednesday that it expects to raise $6 billion in an initial public offering that would be the largest to date for a U.S. company. Others outside the U.S. have raised more. In 1998, Japanese mobile-phone company NTT Mobile Communications Network Inc., known as NTT DoCoMo, completed the largest IPO in history with an $18 billion offering.

Weighing the right moment
AT&T's board hasn't yet approved an IPO, or the final structure of the wireless tracking stock, according to people close to the company. A final decision may not occur for weeks as AT&T evaluates market conditions and whether the time is right for such an offering.

AT&T needs the approval of MediaOne Group (NYSE:UMG) before it can issue a tracking stock. The phone and cable-TV giant is in the process of acquiring the Denver cable operator for $54 billion.

Sprint Corp. initially planned a public offering of its hot PCS wireless unit, but pulled back plans late last year when market conditions soured, electing to simply distribute its tracking stock to shareholders.

But many within AT&T are understood to be pushing to go ahead with an IPO so the phone company can cash in on Wall Street's current love affair with wireless stocks. "I don't think you will ever get a time in the future where wireless is hotter than it is now," said Eric Strumingher, an analyst with PaineWebber. He said an IPO makes sense, especially as AT&T invests heavily in updating and expanding its cable and wireless networks.

Heavy investments needed
AT&T needs to invest billions more to build out its wireless network and address concerns about capacity shortages in major areas. With the company expected to invest heavily in its planned "fixed wireless" network to serve as an alternative way to reach into millions of U.S. homes, total wireless capital expenditures could exceed $4 billion during the year 2000. (Fixed wireless is a technology that would use antennas attached to homes to provide local phone service and high-speed Internet access.)

Some point out AT&T will enjoy many benefits simply by issuing the tracking stock, alleviating pressure on its earnings and having a new currency to tap, especially if the value of the shares increases.

Few deny that an IPO is an attractive option. AT&T's cell-phone business is considered one of the most valuable in the industry. The company serves more than 10 million wireless customers throughout the country. AT&T is often credited for its innovative calling plans, particularly its popular Digital One rate that offers flat-rate pricing with no roaming or long-distance fees.

The company also enjoys a strong following of business customers who typically accumulate hefty monthly bills. Such customers are less likely to switch to competing providers to save a few dollars. During the third quarter, AT&T's average wireless customer paid $67.90 -- much higher than the industry average. Sprint's average wireless customer paid $54. Sprint has agreed to be acquired by MCI WorldCom Inc. for $115 billion.

AT&T's churn rate -- industry jargon for the rate at which customers switch to competitors -- hovered at around 2.5 percent, while Sprint's churn rate was around 3.7 percent, according to Cynthia Motz, a wireless analyst at Credit Suisse First Boston in New York. "Sprint may be adding the most customers, but they're signing up people who switch providers very quickly," Motz said.

--Steven Lipin and Nicole Harris contributed to this article.