Updated from 7:10 a.m. EDT

BellSouth

(BLS)

and

SBC Communications

(SBC)

said on Wednesday they had agreed to combine their U.S. wireless operations, creating the second largest wireless carrier in the country.

The deal comes two days after

Bell Atlantic

(BEL)

and

Vodafone Airtouch

(VOD) - Get Report

formally

folded their U.S. wireless operations into

Verizon Wireless

, the U.S.' largest wireless company with more than 24 million customers.

In midday trading SBC was up 11/16, or 2%, at 46 11/16 and BellSouth was up 1, or 2%, at 49 7/8. (SBC closed up 5/16, or 0.7%, at 46 5/16 while BellSouth closed up 3/8, or 0.8%, at 49 1/4).

In a joint statement, BellSouth of Atlanta and SBC of San Antonio said the new company, which has yet to be named, would serve 16.2 million subscribers and reach 175 million potential customers. SBC will own 60% of the venture and BellSouth will own the remainder. Each company will appoint two directors to the new venture's board.

"We are combining two of the best wireless operations in the country into a stronger, bigger, more capable national competitor,'' Edward E. Whitacre Jr., chairman and CEO of SBC, said in a statement. "Our customers will soon have a more powerful wireless provider, capable of quickly rolling out state-of-the-art data services, and we will create value for our investors.''

Rex Mitchell, an analyst at

Banc of America Securities

, applauded the deal, saying it would allow BellSouth and SBC to expand their wireless business from coast to coast without taking an earnings hit.

"Shareholders of both of the companies have been fearing an acquisition that would be dilutive. This way they are not," said Mitchell. "Both companies reaffirmed their guidance for 2000."

Wall Street expects SBC to post earnings of 52 cents a share for the quarter ended March 31 and $2.26 a share for full year 2000 and BellSouth to record earnings of 52 cents for the quarter and $2.21 for the year, according to surveys conducted by

First Call/Thomson Financial

.

Mitchell rates both companies a buy. His firm has done previous underwriting for BellSouth.

Analysts predict wireless penetration in the U.S. will reach 70% to 80% within 10 years, up from 30% today, driven by demand for wireless data and Internet services. BellSouth, the dominant local telephone company in the southeast, and SBC, America's largest local telephone company, said their wireless operation would focus on boosting growth by targeting high-end customers who are interested in wireless data.

The jointly formed company will also consider acquisitions and bidding on wireless frequencies as well as issuing debt and stock to the public to expand its operations.

Lehman Brothers

advised BellSouth and

Salomon Smith Barney

advised SBC on the deal.