Bell Atlantic aims to expand its horizons abroad

THE BALTIMORE SUN

What is a local and long-distance telephone company in the South Pacific, a cellular company by the Gulf of Mexico, a multimedia company by the Mediterranean and a satellite company operating over the Indian Ocean?

Bell Atlantic Corp.

Born in 1984 as a staid local telephone company for the mid-Atlantic states, the Bell Atlantic of the 1990s has turned into an avid globe trotter in the telecommunications industry. The Philadelphia-based company has made significant investments in New Zealand, Mexico, Italy and Indonesia, but its appetite for exotic cuisines is far from sated.

Last month, Bell Atlantic and France Telecom teamed up to make an unsuccessful run at 27 percent of the Czech national phone company. Undaunted, Bell Atlantic has now joined with British Telecommunications PLC to bid for 25 percent of the Belgian carrier Belgacom.

But journeying into foreign lands can bring hazards. That lesson was driven home over the past two quarters as Bell Atlantic was forced to take charges against earnings totaling $38.6 million because the Mexican peso crisis reduced the value of its investment in the Mexican cellular company Grupo Iusacell Mexico SA.

Bell Atlantic's global ambitions are largely driven by the erosion of its regional telephone monopoly -- a process that has only begun to cut into its revenue. Company executives know they have to look elsewhere for growth opportunities.

Alexander H. Good, a former assistant secretary of commerce for international trade in the Reagan administration, is the man Bell Atlantic brought aboard in October 1994 to make sure the company invests in the right "elsewheres" in the international market. As the president and chief executive of Bell Atlantic International, the 45-year-old Mr. Good leads an organization that represents a tiny fraction of Bell Atlantic's revenues but a large part of its future.

Mr. Good would not be specific about Bell Atlantic's goals in the world arena, but he said he would not be content with 10 percent of the company's revenue, which came to $13.8 billion in 1994. "I think we should be shooting for in excess of that," he said. "We want it to be as large as it can be as long as it's achieving our objectives."

Roaming far, wide

Bell Atlantic's global ventures are part of a trend among the regional Bell operating companies to roam far and wide in search of new markets. Their increased interest in foreign ventures comes at a time when many countries are dismantling their government-run telecommunications monopolies and seeking to modernize their often-decrepit phone systems.

Up until now, Bell Atlantic's global activities have ranked in the middle of the pack among the regional Bells, said Tedd Alexander, telecommunications analyst at Legg Mason in Baltimore. He said Bell South and U S West have been more aggressive in the international sphere.

But with the energetic Mr. Good aboard, Bell Atlantic is likely to redouble its international efforts.

"We believe Bell Atlantic is extremely well positioned to take advantage of the international marketplace because of what we bring to the party," Mr. Good said. "I would argue that we are probably the most efficient local telephone company in the United States."

But detractors say many of the regional Bell companies' global investments show they have more confidence than common sense. These critics contend that U.S. rate payers are, in effect, subsidizing the ill-advised gambles of innocents abroad.

"This kind of activity is what happens when people have money in a pocket and it's burning a hole in it," said A. Michael Noll, a professor of communications at the Annenberg School for Communication at the University of Southern California.

Mixed results

So far, Bell Atlantic's international track record has been mixed, with one apparent success, one rocky start and a smattering of ventures with records too new to judge.

The company's investment of $1.2 billion in Telecom Corp. of New Zealand has been almost too successful since it and Ameritech Corp. bought the privatized company from the government in 1990.

With a deregulated market and no effective competition in the local exchange, TCNZ has prospered. Its stock price has more than doubled since 1991, and Bell Atlantic has already recouped its original investment while continuing to hold on to 24.8 percent of the company. But the company's profits and dividends have soared so conspicuously that some New Zealand politicians are calling for reregulation.

"There's always an element of that wherever you go. That's almost a part of doing business in any jurisdiction," said Mr. Good.

In Mexico, there has been no problem of excessive dividends. Instead, Bell Atlantic has received a lesson in the volatility of markets in the developing world.

Only months after Bell Atlantic completed its $1.04 billion investment in Grupo Iusacell in August 1994, the stock price plunged as a result of Mexico's peso crisis. The process of rebuilding Mexico's shattered economy, which has brought soaring inflation and interest rates, has cut deeply into the growth of the Mexican cellular market.

Dr. Noll pointed to the investment as a prime example of phone company bumbling.

"Not to put down a country, but Mexico?" Dr. Noll asked. "Who advised them? Didn't anyone tell them of the risks -- that the peso was overvalued and due for a collapse?"

But Mr. Good, who was not with the company when the investment was made, dismissed the criticism as "Monday morning quarterbacking."

"The worst is behind us," he said. "We are still bullish on the enormous opportunity in Mexico."

Tom Brennan, senior consultant with TeleChoice Inc. in Verona, N.J., said Bell Atlantic made the right move because Grupo Iusacell is fundamentally a strong company. "The cellular investment in Mexico is a great one because the wired network needs so much work. It's the way you do business in Mexico," he said.

Another country that Bell Atlantic has identified as strategically important is Italy, where it is rushing to take advantage of the erosion of local monopolies.

So far, its main investment vehicle has been Omnitel Pronto Italia, which has been awarded that country's second cellular license. Omnitel, in which Bell Atlantic invested $31 million for an 11.6 percent stake, is building its network now and is expected to launch commercial service late this year.

The most important implication of the Omnitel investment for Bell Atlantic is that it has brought it together with the giant telecommunications company Olivetti SpA, the leading partner in the venture. In April, the two companies announced they would launch a data transmission company called Infostrada SpA to compete with the state-controlled monopoly company, and the two have indicated they will explore other joint projects.

Challenge in Europe

Except for Italy, Bell Atlantic has found it challenging to gain a foothold in Europe. Mr. Good said it has had success in selling its Advanced Intelligent Network -- the computerized switching system that makes such features as caller ID possible -- to European phone companies, but the cost of buying into those firms can be steep.

Mr. Good said Bell Atlantic was disappointed that its Telfar venture failed to get a foothold in the Czech Republic, but he expressed no regrets over the bid. "We are very disciplined in what we're going to pay for these overseas ventures," he said.

For now, the opportunities for U.S. companies to invest in Europe are limited by the intransigence of legally entrenched monopolies in the two strongest continental markets, France and Germany. But the two countries are under a European Union mandate to open their telecommunications markets by 1998. If those nations comply -- there are doubts about France -- U.S. long-distance companies and the regional Bells will be looking for a piece of the action.

For now, the country Mr. Good seems most excited about is India, with its enormous population, open door to investment and desperate need to build up its telecommunications infrastructure. China is high on his list in spite of recent tensions in relations with Washington. Only Japan draws a tepid response. "It's one of the more restrictive telephone markets in the world," he said.

Mr. Good said Bell Atlantic will be selective in choosing its overseas investments, and he's confident he'll have plenty of options.

True, but there are also a lot of ratholes out there, say the doubters.

Robert Mirani, senior telecommunications analyst with the Yankee Group in Cambridge, Mass., noted that the regional Bell companies are far less experienced in dealing with foreign business cultures than their rivals from the long-distance industry. He added that he hasn't seen any evidence that Bell Atlantic is any more enlightened than its peers.

Mr. Mirani said if the Bell companies are serious about flying in international markets, they're going to have to ride out some turbulence.

"It'll probably be pretty bumpy through the beginning of the next century . . . " said Mr. Mirani. "They have to be prepared to ride things through and really learn the market -- as opposed to simply throwing their money around."

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