Updated from 1:32 p.m. EST

AT&T

(T) - Get Report

affiliates

Telecorp

(TLCP)

and

Tritel

(TTEL)

said Tuesday that they would merge and swap some geographic licenses with Ma Bell.

In a stock deal valued at $5.4 billion based on Monday's closing stock prices, Tritel shareholders would receive 0.76 Telecorp share for each of their shares. The new entity would continue to provide digital wireless service under Telecorp's SunCom brand, the companies said.

Shares of Telecorp fell 6 1/16, or 15%, to close at 45 15/16 Tuesday. Tritel's shares gained 7 3/4, or 32%, to close at 31 3/4.

The deal is intended to create a large, contiguous swath of service licenses across the Midwest. Tritel currently provides service in Alabama, Georgia, Kentucky, Mississippi and Tennessee, while Telecorp offers service in Louisiana, Tennessee and Arkansas, as well as New Hampshire and Massachusetts.

Telecorp said it would trade AT&T its New England properties, including 20,000 customers, and 9.3 million new shares in exchange for licenses in Wisconsin and Iowa.

"When you couple them with the Tritel properties, our operation will run from the Great Lakes to the Gulf of Mexico," said Gerald T. Vento, chairman and chief executive of Telecorp, in a statement.

The new company, to be called Telecorp PCS, would cover service areas with a total population of 35 million, the companies said. AT&T would own 23% of the new company, executives told analysts in a conference call. The telecommunications giant granted Telecorp several of its original licenses in exchange for an 18% stake.

The deal will be presented to shareholders, company officials said, but their official approval is largely a foregone conclusion: Tritel's chief executive, William Mounger, controls 27% of the voting power and the company's executive vice president, E.B. Martin, controls 26%. Vento and Thomas H. Sullivan, chief financial officer for Telecorp, together control 50.1% of Telecorp's voting power, of which they each own half. Those four men have all signed voting agreements in favor of the merger, the companies said.

Insiders must control voting power at designated entities under FCC rules intended to keep large telecommunications companies from setting up front companies to bid for wireless service licenses.

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The deal requires

Federal Communications Commission

approval, which the companies expect to receive within 150 to 180 days, officials said in the conference call with analysts. The merger can proceed without completion of the swap with AT&T, but the reverse is not true, the companies said. They noted that the FCC typically acts on such requests as a package.

Regulatory issues aside, analysts raised logistical questions about the companies' different technology, suppliers and pricing strategies. For instance, the companies use different billing systems, and customer accounts will need to be integrated into one system.

The companies have different agreements with AT&T for use of its wireless network. AT&T and Telecorp pay one another 25 cents a minute for off-network roaming, while Tritel's deal is for around 10 cents a minute. One analyst asked whether AT&T had extracted a better deal in the negotiations. Company officials said the different roaming arrangements will remain in place even as customers are integrated under the new company, officials said.

Telecorp currently purchases switches from

Lucent

(LU)

, while Tritel buys switching equipment from

Ericsson

(ERICY)

. Both companies buy handsets from

Motorola

(MOT)

, Ericsson and

Nokia

(NOK) - Get Report

, using AT&T's volume purchasing agreements.

"I think we're in an enviable position," Vento said. "We have two vendors to work with going forward, and usually that's a more beneficial environment to extract better rates."