AirTouch Communications

One California Street
San Francisco, California 94108
U.S.A.
(415) 658-2000
Fax: (415) 658-2034

Public Company
Incorporated: 1984
Employees: 5,000
Sales: $988 million
Stock Exchanges: New York Pacific
SICs: 4812 Radiotelephone Communications; 6719 Holding
Companies, Not Elsewhere Classified

AirTouch Communications, one of the world’s leading wireless telecommunications organizations, serves the needs of over three million cellular phone and paging customers in the United States, Europe, and Asia. AirTouch operates through four entities: AirTouch International, AirTouch Cellular, AirTouch Paging, and AirTouch Teletrac. AirTouch Cellular is the fifth largest cellular provider in the United States, while AirTouch Paging, the nation’s third largest provider of paging services, operates in more than 100 metropolitan areas in 15 states. In 1994 PacTel Corporation was spun off into an entirely independent company, and renamed AirTouch Communications.

AirTouch Communications, formerly PacTel Corporation, was originally established in 1984 as a subsidiary of Pacific Telesis Group. Following the mandated breakup of the American Telephone and Telegraph Company, Pacific Telesis, like many other regional Bell companies, established two divisions. The first focused on regulated local telephone service. The second, its PacTel Corporation, focused on developing cellular, paging, and other less stringently regulated telecommunications services.

AirTouch’s largest operating segment, AirTouch Cellular (formerly PacTel Cellular), was launched to facilitate communications for the 1984 Olympic Games in Los Angeles. By the year’s end, the organization provided cellular service to approximately 15,000 subscribers in California. In subsequent years, AirTouch Cellular experienced significant growth in the number of cellular phone subscribers. According to a report in Communication News, by early 1987 the company boasted more than 60,000 subscribers in the Los Angeles area. To meet the needs of its subscribers, the company operated more than 55 cell sites, each carefully chosen to maximize signal transmission. A typical cell site housed sensitive communications equipment within a 484-square-foot structure built with factory-made panels. Special ventilating and air conditioning equipment helped maintain the climate control.

AirTouch Paging was established in 1986 when Pacific Telesis Group acquired Communications Industries. The company, originally known as PacTel Paging, provides paging services to nearly 1.5 million customers. Paging units are small, portable units that are carried by the subscriber. When activated, a paging unit alerts its owner to incoming telephone calls by beeping or vibrating. Most early paging units were capable of displaying a numeric message. Some sophisticated units developed later also offer a menu of pre-programmed messages and the ability to receive alphanumeric messages up to 240 characters in length. In 1987, PacTel’s international subsidiary began offering regional paging service in Bangkok, Thailand.

Throughout the late 1980s, AirTouch saw rapid growth in the popularity of wireless telecommunications service, and, by the decade’s end, the company was serving 339,000 subscribers. AirTouch continued to grow through acquisitions, partnerships, and increased market penetration during the early 1990s. In 1991, the company introduced a retail marketing strategy for pagers. By establishing retail outlets, the company was able to reach nontraditional customers such as family users. In 1994, AirTouch’s retail distribution channel network consisted of more than 2,500 locations.

Evolving technology also played a role in the company’s growth. In 1991, AirTouch began participating in a Japanese consortium to provide long-distance telephone service between Japan and other nations. The company’s 5,200-mile-long undersea fiber optic cable was the first of its kind to provide a direct communications link between the United States and Japan.

Technological innovations also led to the formation of Air-Touch Teletrac (formerly PacTel Teletrac) in 1991. Teletrac began operation in Los Angeles to provide tracking service for stolen vehicles and corporate fleets. Teletrac systems operates through a network of antennae, which carries radio signals to aid in mapping a vehicle’s position on a computer screen. According to a company statement, “In an area as large as 4,500 square miles, a vehicle’s location can be pinpointed within approximately 100 feet.” Corporate fleet tracking systems achieved popularity with courier services, law enforcement agencies, transit systems, and ambulance services because they improved dispatcher efficiency, reduced operating expenses, and enhanced customer service.

AirTouch also pioneered Code Division Multiple Access (CDMA) digital cellular technology. CDMA works by assigning an electronic code to a call signal, which permits more calls to occupy the same space and be dispersed across a radio frequency band. The technology, said to increase call-handling capacity by as much as 20 times the rate handled by conventional analog technology, was also touted as offering clearer service and more transparent handoffs from cell to cell. In early 1992, AirTouch was the first of the nation’s cellular carriers to announce a commitment to the CDMA format, and, in January 1994, the company pledged to invest almost $250 million to install CDMA technology in California and Georgia. The Los Angeles system was expected to be operational in mid-1995.

In another bid to improve its technological offerings, AirTouch formed the Data Group to participate in the advancement of data transmission services. Data transmission capabilities enables cellular customers to access databases and on-line services. As a result of its efforts, a new technology for data transmission, cellular digital packet data (CDPD), was introduced in 1994. CDPD enabled data to be transmitted more quickly and efficiently than previous technologies by breaking the data into segments, called “packets,” that could be sent using intervals between voice traffic on multiple channels instead of requiring a dedicated channel. The data packets were then reassembled and routed to the receiver. CDPD is expected to assist in integrating cellular telephones with laptop computers, mobile field service terminals, automated teller machines, credit verifiers, and even vending machines.

In September 1992, AirTouch introduced a patented microcell transceiver to improve cellular service in certain environments. In areas where radio signals were obstructed, such as canyons, tunnels, and congested urban locations, cellular callers sometimes encountered interrupted service. Microcell transceivers are small, low-power devices which can be deployed in strategic locations to provide better service to difficult areas.

Other new technologies in which AirTouch played a developmental role included the Global Standard for Mobile Communications (GSM), which was adopted by more than 70 countries, and the European Radio Message System (ERMES), a digital paging standard developed through a joint venture in France. AirTouch also participated in devising a cellular data service for United Parcel Service (UPS) that permitted the development of a nationwide package tracking system.

During 1992, Pacific Telesis decided to spin off AirTouch as an independent company. Several reasons were given for the split. First, it was felt that a focus exclusively on wireless services would enable the company to operate more efficiently in its specialized niche. In addition, becoming independent would free the subsidiary from regulatory restrictions placed on “Baby Bells” following the break-up of the nation’s telephone industry. Some industry analysts also pointed out that the division would better serve the needs of the company’s diverse stockholders. While traditional telephone utility shareholders tended to be conservative investors seeking regular dividends and low risk, many investors in innovative wireless telecommunication companies were willing to forgo dividends in favor of long-term growth. By separating the two companies, Pacific Telesis retained its traditional focus on line-based communications in California and Nevada, including local and toll telecommunications, data and video services, and access to long-distance providers as well as directory advertising. AirTouch focused on wireless communications including cellular, paging, wireless data services, and vehicle location.

An initial public offering (IPO) in December 1993 raised $1.38 billion to capitalize AirTouch. The IPO was the largest involving a technological corporation and the third largest IPO of any kind in U.S. history. Sixty million shares were offered at $23 per share, 42 million in the United States and Canada, 13.5 million in Europe, and 4.5 million in Asia. Capital raised was slated for debt retirement, investment in cellular licenses around the world, and the development of new technologies. At the time of the IPO, Pacific Telesis continued to hold 88 percent of AirTouch’s stock. The following April, Pacific Telesis shareholders were given stock in the new company and the spin off was completed. In conjunction with the final separation, the name AirTouch was adopted.

In the third quarter of 1994, AirTouch reported that it served more than 3.1 million customers around the world, including 1.3 million U.S. cellular customers, 275,000 international cellular customers, and 1.4 million U.S. paging customers. AirTouch’s largest domestic cellular market was located in southern California, covering the Los Angeles and San Diego areas.

The company’s international cellular activities are focused in Germany, Portugal, Sweden, Belgium, Japan, Italy, and South Korea. In Germany, AirTouch was the second largest partner in a cellular company, Mannesmann Mobilfunk GmbH (MMO), providing service to nearly 800,000 and, according to one estimate, processing more than ten million calls per week. In Portugal, AirTouch held a 23 percent ownership interest in Telecel, a cellular provider with 70,000 subscribers as of September 1994. In Sweden, AirTouch held a 51 percent interest in NordicTel Holdings, Sweden’s digital cellular consortium. In Japan, AirTouch participated in five joint ventures serving customers in Tokyo, Osaka, Nagoya, the Kyushu/Okinawa region, and Chugo ku. In Italy, a consortium in which AirTouch International held a 10.2 percent ownership interest, Omnitel-Pronto Italia, was awarded a cellular license and expected to begin servicing the Italian population by early 1996. In South Korea, AirTouch served as the lead foreign partner and operator, holding a 11.3 percent ownership interest in a consortium that was awarded a cellular license and expected to begin servicing Seoul, Pusan, and Taegu by early 1996. In May 1994, AirTouch announced that it had come to an agreement with the state-owned Belgian telecommunications company, Belgacom, to form a joint venture to provide mobile communications. In December of 1994, AirTouch was the lead partner in a consortium awarded a digital cellular license in Spain.

AirTouch’s international paging services were provided in Portugal, Spain, France, and Thailand. In Spain, AirTouch’s paging service was launched in 1993 through Sistelcom-Telemensje, an organization in which AirTouch held a 17.5 percent indirect ownership interest. In Portugal, AirTouch owned 23 percent of Telechamada which provided paging service in a geographic area covering more than 90 percent of the nation’s population. In France, AirTouch owned an 18.5 percent interest in the paging company, Infomobile. In Thailand, AirTouch operated paging services through two companies, a joint venture and a subsidiary.

In the United States, AirTouch offered paging services in 100 different markets including Atlanta, Dallas/Fort Worth, Detroit, Houston, Los Angeles, Phoenix, St. Louis, San Diego, San Francisco, Seattle, and Tampa/St. Petersburg. Other wireless services available in the United States included vehicle location services offered in Chicago, Dallas/Fort Worth, Houston, Los Angeles, Detroit, and Miami. Mobile data services were offered within the company’s domestic cellular markets.

In July 1994, AirTouch announced an agreement with U S West to combine domestic cellular properties. The agreement gave the joint venture, Wireless Management Company, cellular licenses in 16 of the nation’s top 30 markets and more than 1.8 million customers. Wireless Management Company was initially expected to be approximately 70 percent owned by Air-Touch. According to a statement from AirTouch Cellular, the move created the third largest cellular company in the United States in terms of “POPs,” an industry term quantifying potential customers by multiplying the population of a region by the telecommunication carrier’s percent interest in the area. Air-Touch Cellular held licenses to serve 53.4 million POPs. In October, AirTouch formed a partnership with US West, Bell Atlantic, and NYNEX to provide nationwide wireless services. The companies also formed a partnership for the purpose of participating in the FCC’s December broadband auctions for Personal Communications Services (PCS) licenses.

Also in July 1994, AirTouch Paging won a two-way nationwide radio-frequency paging license at an FCC auction. The ability afforded by the frequency was expected to enable the company to offer new paging services scheduled to debut in 1996. These included acknowledgement paging, telemetry, data transmission, and limited two-way messaging.

AirTouch introduced two new customer services during the summer of 1994. AirTouch Cellular unveiled AirTouch One Number service, which consolidated multiple numbers such as home, office, cellular, and pager numbers under a single gateway number. Customers using the service were able to screen calls and choose whether to respond with a recorded reply message, route the call to a voice mail system, or be immediately connected. The second new service, Display Messaging, received and stored pages, short messages, and voice mail messages even when the cellular phone was already in use or turned off. Callers were able to send three types of messages to Display Messaging subscribers: a telephone number, a short message selected from a pre-programmed list of messages, or voice mail.

In the mid-1990s, AirTouch executives planned to continue their strategy of growth through expansion into new U.S. markets, increased penetration in existing markets, and participation in international joint ventures. The company also planned to remain at the forefront of new technology. It entered into domestic partnerships to bid on personal communications services (PCS), the next generation of wireless services with anywhere/anytime communications capabilities. According to The Wall Street Journal, industry analysts anticipated that some PCS frequencies, scheduled to be auctioned by the FCC in top markets such as New York City, would cost as much as $3 billion. In addition, AirTouch planned to invest $275 million in Globalstar, a global access, satellite-based mobile telephone system slated to begin service in 1998. Under an announced agreement, AirTouch Communications would provide exclusive service for the United States, Japan, Indonesia, Australia, Switzerland, the Netherlands, Belgium, Portugal, and the Caribbean.