To be called AT&T Wireless Group, the new company will include AT&T's voice and data wireless business as well as its stakes in European and other international wireless businesses. In New York, news of the plan boosted AT&T shares, which have been lagging other stocks this year. In morning trading, they were up 11/2 to 58 1/2.
"We are confident investors will see the value of the business," said Michael Armstrong, the chairman.
Analysts predicted that the currency from the IPO would help AT&T explore new acquisitions. The IPO will give investors a tracking stock that reflects the performance of the new unit but does not imply any ownership in AT&T itself.
A similar strategy was adopted recently by Sprint, which also created a tracking stock for its wireless business.
AT&T's wireless business is expected to generate revenue of $7.6 billion this year. In the third quarter, meanwhile, cash flow at the unit rose 53 per cent compared with the same quarter a year ago. Over the last three quarters, the business has boasted average revenue growth of about 40 per cent.
John Zeglis, AT&T president, has been appointed to head the new group as its chairman and chief executive.
Mr Zeglis told analysts the new unit would work with British Telecom, through the Concert joint venture, to step up investment in wireless networks in Europe.
Officials said the IPO would probably take place next spring, with both Goldman Sachs and Merrill Lynch advising. An additional number of shares will be distributed to AT&T shareholders later next year, they said. Precise terms for the sale were not disclosed yesterday.
The AT&T move came as rumours flared in Europe that Royal KPN, the biggest Dutch phone company, and Vivendi, the dominant shareholder in France's second-largest phone business, are in talks to combine their cellular phone units.
BellSouth Corp, the US regional phone company that owns a stake in E- Plus, Germany's third-largest wireless network, is also said to be interested in joining the partnership.
As the battle to dominate Europe's cellular phone market intensifies Vivendi and KPN need to expand outside their home markets to compete with rivals such as Vodafone AirTouch, which has offered $147bn for Mannesmann.