Updated from 8:23 a.m. EDT

Verizon Wireless, the wireless combination of Bell Atlantic ( BEL), Vodafone AirTouch ( VOD) and GTE ( GTE - Get Report), will sell off its overlapping business in three cities to AT&T Wireless Group , the companies announced Monday.

The deal, valued at about $3.3 billion, will expand AT&T's wireless network to cover all of the San Francisco, San Diego, and Houston markets, and add more than 1.3 million customers.

The companies said the agreements represented a major step toward avoiding an overlap in cellular service operations that would be created when GTE Wireless assets are integrated into Verizon Wireless after the New York-based Bell Atlantic and Irving, Texas-based GTE merge -- a deal approved by the FCC last week.

Shares of AT&T Wireless, GTE and Bell Atlantic were up in afternoon trading but Vodafone was trading lower. Shares of Redmond, Wash.-based AT&T Wireless ended up 15/16, or 3%, at 28 9/16. Bell Atlantic shares were up 2, or 4%, at 57 1/16. GTE stock was up 3 5/16, or 5%, at 69 5/16. Meanwhile, shares of the UK-based wireless giant Vodafone were down 1 3/16, or 3%, at 48 1/2.

In a statement released Monday, John Zeglis, chairman and chief executive officer of AT&T Wireless, said that acquiring the wireless systems in the new markets has "jumpstarted our strategy of expanding our footprint and achieving our growth potential."

The group expects to hire another 1,400 employees as a result of the acquisition.

Zeglis added that the new markets, which cover a combined population of about 15 million residents, will allow AT&T Wireless to deliver its service to 90% of California residents and 70% of those living in Texas. By including the three cities in its coverage area, AT&T Wireless officials say the company now has AT&T-branded wireless service in each of the country's top 15 wireless markets.

"It's really positive for AT&T because they're trying to increase their footprint," said Peter Friedland, an analyst at the San Francisco-based investment banking firm W.R. Hambrecht & Co.

Though Friedland said acquiring the three additional markets was a big step in the company's strategy to improve its cost structure by covering more of the U.S. so it won't have to incur a lot of off-network usage, he cautioned that investors aren't likely to see the benefits of the company's expansion on its bottom line for another year. He maintains a target price of $32 per share by the middle of 2001. W.R. Hambrecht maintains a neutral rating on the stock, which it does not underwrite.

Though an analyst at ABN-AMRO in New York called the deal a necessary transaction, as Verizon Wireless needed to sell off its overlapping coverage areas, he said it should benefit AT&T Wireless. The wireless group will now have branded service throughout those areas.

ABN-AMRO, an underwriter of the AT&T Wireless tracking stock, maintains its longterm target price of $40 and has held its buy rating since the stock went public. Since going public about seven weeks ago, the AT&T Wireless stock has traded as high as $36 per share, on May 1, before slipping to $24.375 per share on May 23. ABN-AMRO also gives a buy rating to shares of Bell Atlantic, a partner in the Verizon Wireless venture, with a longterm target price for its stock of $90.

AT&T Wireless had owned about 53% of the San Francisco market before Monday's announcement. The new deal allowed the group to acquire the remaining interest from Vodafone Airtouch. The system covers a population base of more than 7 million residents, including nearly 1 million CellularOne brand subscribers.

The San Diego wireless system is being bought from GTE and covers an area of nearly 3 million people, including more than 200,000 GTE Wireless brand subscribers. AT&T Wireless is obtaining the Houston wireless system from PrimeCo PCS, including a population about 5.7 million people with 190,000 wireless subscribers.

AT&T Wireless, a wholly owned subsidiary of AT&T ( T), already operates one of the largest wireless networks in the country, with more than 10.1 million subscribers, according to company officials The group was spun off from AT&T this spring, with an initial public offering that raised $10.6 billion on April 27. AT&T retains about 84% of the company.