PacTel Board Nears Vote on Splitting From Bells : Telecommunications: Some analysts say it’s a creative solution to constraints that regional Bells have long complained about; others say it would mean higher rates.

It takes a considerable amount of daring, indeed chutzpah, for a chief executive to voluntarily suggest selling about 90% of his business--most of it a sure-bet monopoly--to focus on the highly speculative 10% that remains.

But that’s the bold proposition Pacific Telesis Group Chairman Sam Ginn put on the table five months ago, when he suggested spinning off the holding company’s staid and traditional telephone operations--including the Pacific Bell and Nevada Bell phone companies--to concentrate on its free-wheeling, high-tech telecommunications ventures, including cellular franchises, cable television opportunities and new wireless phone technologies.

Many analysts and industry sources say the spinoff would be a creative solution to the regulatory and financial constraints that the regional Bell companies have complained about since they were cut loose from AT&T; nearly a decade ago. And many believe that the state’s largest phone company will take the plunge and endorse the split--a decision the company’s board is expected to announce in about a month.

“I don’t think Sam Ginn would go through this exercise if he didn’t think this was the way to go,” says Patricia Eckert, a member of the California Public Utilities Commission, which regulates the phone companies and would have to approve any spinoff of Pacific Bell.

Pacific Telesis executives won’t discuss the likely outcome.

A Silicon Valley research firm notes that Ginn’s longstanding goal of turning Pac Tel into one of the world’s top-tier telecommunications companies by the end of the decade would require the type of radical move that splitting the company would provide.

If endorsed, the split would provide a striking model for the other six regional Bell holding companies in the United States, potentially enrich shareholders and free the two new companies from the regulatory binds and money-raising problems that have plagued their joint operations.

Under current and proposed state and federal regulations, PacTel is limited--and in some cases prohibited--from pursuing new technology ventures because of its ownership of the monopoly phone companies. Splitting the parts would allow each side to pursue its own separate business under regulations aimed at just that organization. The split, analysts say, would also allow each company to raise its own financial backing from Wall Street based on its own business outlook.

However, some analysts worry that the split would mean higher rates for residential telephone customers and a telecommunications network that could not be upgraded to keep pace with advancing technology.

“The local phone companies face increasing competition, declining market share and a loss of monopoly in the businesses that have provided their greatest profits,” explains William Davidson, a business professor at the University of Southern California. “If Pacific Bell is on its own, it will have to face these problems alone--without any potential revenue support from its parent.”

The result, Davidson says, would be higher monthly service charges and a potential decline in the quality of the phone company’s network because of falling profits.

Now, however, it is the Pacific Bell and Nevada Bell operations that give a firm financial footing to Pacific Telesis.

In 1991, the phone companies generated $8.8 billion of Pacific Telesis’ $9.9 billion in total revenue and $942 million of its $1-billion profit.

Pacific Telesis’ non-telephone businesses, including its large cellular operations and its international businesses, provided $1 billion in revenue and $73 million in profit.

“Pac Tel would give up the bird in the hand to go after the birds in the bush that they may not know what to do with even if they could catch them,” says A. Michael Noll, acting dean of the Annenburg School of Communications at USC.

Despite the obvious financial value of the phone companies, Robert Bareda, vice president for corporate strategy at Pacific Telesis, says Ginn is focusing on the future, when now-experimental technologies become standard fare and possibly direct competitors to the phone companies.

An important reason for shedding the telephone operations, Bareda says, is that it would free PacTel to pursue fast-growth business opportunities in wireless personal communication devices for voice and computer data transmission and cable television partnerships for in-home entertainment.

Others suggest that PacTel would also like to develop a long-distance service for its cellular operations and become a bigger player in the telephone- and television-based information services business, an industry on the verge of taking off.

“I keep hearing that PacTel is really serious about this split,” says James Moore of Geo Partners, a Boston technology research firm. “And, intellectually, there is all sorts of justification for it. Even without the issues of regulation, it’s a radical solution for dealing with the problem of technologies that leapfrog each other. You separate them.”