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Reaction Muted to AT&T's Tracking Stock Announcement

The tracking stock was expected after weeks of speculation.

Updated from 10:58 a.m. EST

Under pressure to prove that it will continue to be a force in the increasingly innovative and lucrative telecommunications industry,


(T) - Get Report

announced several initiatives Monday morning, including the creation of a tracking stock for its wireless business.

The tracking stock was expected after weeks of speculation. Investors showed little reaction to the announcement. By late morning Monday, AT&T's shares were up 1 1/4 at 58 1/4. (The stock closed down 3/16 to 56 13/16.)

AT&T said it was planning an initial public offering of its wireless business, to be called

AT&T Wireless Group

, in the spring. The IPO is likely to be the largest ever, and is expected to raise $8 billion to $10 billion.

United Parcel Service

(UPS) - Get Report

currently holds the record with its $5.47 billion IPO last month.

John Zeglis, president of AT&T, has been named chairman and chief executive of the new unit, while Daniel Hesse will continue to serve as Zeglis' deputy as executive vice president of the group. He retains the title of president and chief executive of

AT&T Wireless Services

, the mobile unit.

Revenue growth for AT&T's wireless unit is expected to range from 25% to 30% next year, AT&T said, while growth in earnings before interest, taxes, depreciation and amortization should range from 35% to 40%. Meanwhile, subscriber growth is expected to grow 21% to 24%.

"This will unlock the hidden value inside AT&T and give them a significant amount of financial flexibility," said Robert Schiffman, a corporate bond analyst at

Donaldson Lufkin & Jenrette

. "They'll be raising $7 billion to $10 billion worth of cash. And they get a new currency, so they have the cash to buy anyone who doesn't want equity." DLJ has not participated in any recent underwriting for AT&T.

Zeglis' promotion effectively vaults him to the top of a short list of candidates to succeed C. Michael Armstrong, 61, who faces mandatory retirement in four years.

Another contender is Daniel Somers, formerly chief financial officer of

AT&T's Broadband and Internet Services

unit, who has now been named its president and chief executive. He succeeds Leo Hindery, the former

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executive who resigned in October.

Monday, Hindery accepted a job as chief executive and chairman of Global Crossing's


Internet services subsidiary, GlobalCenter.

Also on the list is Rick Roscitt, former president and chief executive of

AT&T Solutions

, who will become president of

AT&T Business Services

, where he will oversee the needs of all business customers.

The New York Times

reported Monday that Charles Noski, president of

General Motors'

(GM) - Get Report

Hughes Electronics

subsidiary, is also in negotiations with AT&T for a role there.

Separately, AT&T has an agreement with



, the Internet service provider, to eventually offer Internet access over AT&T's cable systems. Currently,


(ATHM) - Get Report

has exclusive access to those systems through 2002. The move is widely seen as an attempt to satisfy regulatory officials.

With its ability to offer voice, video, data, Internet and wireless offerings, AT&T is positioned well to meet the seemingly insatiable desire by consumers for new and more efficient products. "Expansion will be somewhat slow in the beginning, but AT&T is on a clear path to provide a nationwide bundled service offering that no one else in the world is able to provide," explained Schiffman. "They have all the pieces of the puzzle and now it just boils down to execution."