FCC OKs phone deal


The Federal Communications Commission gave its blessing yesterday to Bell Atlantic Corp.'s two-year quest to acquire GTE Corp. in a $65 billion deal that will create the nation's largest local telephone company.

The combined company will be called Verizon Communications and will control one-third of the nation's phone lines - amounting to 63 million local phone lines in 31 states and the District of Columbia.

In Maryland, Bell Atlantic employs 13,000 people and has 2.8 million customers. It's the state's largest local phone company, with a near monopoly over local residential service.

The FCC approval, the last regulatory hurdle for the deal, came after the companies agreed to partially spin off GTE's Internet infrastructure.

Ivan Seidenberg, chairman and chief executive officer of Bell Atlantic, and Charles R. Lee, chairman and chief executive officer of GTE, will share the CEO title at Verizon. In a news conference yesterday, the pair pronounced the merger a "transforming event."

"It will enable us to offer customers the richest array of high-growth communications services over the most extensive national footprint in the world's most attractive markets," Lee said.

Scott Cleland, managing director of Legg Mason Wood Walker's Precursor Group in Washington, said the merger would be "a net positive for most consumers" and was a long time coming.

"That merger's been in regulatory review purgatory for the past two years," Cleland added. "That's an eternity in Internet time."

As part of the deal, the companies promised to spend $500 million to enter local phone markets or serve 250,000 new customers outside of their current territories within three years of closing.

"There will be those that will claim this merger brings us closer to a re-emergence of Ma Bell," said FCC Chairman William Kennard. But he said the commitments by the companies - outlined in 25 conditions - will help open up local markets and speed the roll-out of high-speed service. "The end result should produce more competition not less."

Those who keep an eye on local phone service said the Bell Atlantic-GTE combination could improve the records of both companies. "Bell Atlantic sure made Nynex look better," said independent telecom analyst Jeff Kagan, referring to Bell Atlantic's purchase of Nynex Corp. in 1997.

The deal is the latest evidence that the seven "Baby Bells," created after the 1984 breakup of AT&T;, have grown into giants in their own right. After the Telecommunications Act of 1996 deregulated the industry, Bell Atlantic snapped up Nynex. SBC Communications Inc. acquired Pacific Telesis Group in 1997 and Ameritech Corp. last October. GTE is not a Baby Bell, but its partnership with Bell Atlantic marks the fourth consolidation among the Bells.

Kagan said the consolidations will help keep prices down. Instead of paying for long distance, cellular, Internet and cable services separately, customers will buy "buckets" of minutes that they can apply to various services.

"The old model's just going away," he said. "Companies are going to be huge in the next few years, making the giant companies today look like jumbo shrimp."

After the first few mergers, Kagan said, telecom companies realized they had to grow to compete. The prospect of large, foreign telecom and Internet companies growing into giants - and overshadowing their U.S. competitors - is worrisome to the industry. In this climate, regulatory agencies have two choices, Kagan said: force the U.S. companies into a second-tier role - or let them compete.

"It feels uncomfortable to everybody," Kagan said of the mergers. "We're just so afraid. But we shouldn't be, as long as we have competition and innovation."

The biggest change Bell Atlantic customers will notice immediately is the disappearance of the signature blue bell logo featured so prominently on phone books, bills and trucks. In its place will be a red "V," which Bell Atlantic introduced with its April launch of Verizon Wireless, a joint venture with Vodafone AirTouch PLC that offers wireless and paging services.

Seidenberg said customers can expect Verizon to offer wireless, Internet access and local phone service under one phone plan in the next few months.

That service is available in New York, and will be available to states where GTE operates. Maryland is not included, and the company won't offer one-stop phone shopping until next year, said Sherry Bellamy, president and CEO of Bell Atlantic-Maryland.

Bellamy said her role in the company may change, though she will remain a senior executive with Verizon.

The combined company will not lay off employees, and will probably add staff as it grows, said Seidenberg. But workers will be shifted to eliminate about 3,000 "redundancies," mostly at Bell Atlantic's corporate headquarters in New York and GTE's in Irving, Texas. New York will be the headquarters for the 260,000-employee combined company.

Seidenberg and Lee didn't complain about the two-year wait, acknowledging the complex nature of their businesses. The biggest sticking-point to the merger was GTE's powerful Internet backbone, the high-speed data pipelines that carry voice and data traffic.

Those lines are considered long-distance lines, and local phone companies cannot offer those services within their regions until they prove the markets are open to competition. Bell Atlantic has cleared that hurdle in New York, where it has been offering long-distance service since December.

The U.S. Department of Justice cleared the Bell Atlantic-GTE merger last May, but the companies withdrew their proposal afterward to figure out how to handle GTE's Internet unit. In January, they resubmitted with a solution: spin off GTE's Internet unit into a new public company, Genuity.

Under FCC regulations, the combined companies can own less than a 10 percent stake in the data-network spinoff. Verizon Communications will control 9.5 percent of Genuity. But when Verizon gets approval to offer long-distance service throughout Bell Atlantic's territory, it will be permitted to have up to an 80 percent stake in Genuity.

The FCC approval marks the last major hurdle for the deal, though the decision could be challenged in court over the Genuity proposal.

Lee said he doubted that would happen. "We don't think there's a minuscule chance that this won't be approved," he said.

GTE's shares lost $2.9531 to close at $66.25 on the New York Stock Exchange. Bell Atlantic shares dropped $1.50 to close at $55.0625.

Wire reports contributed to this article.

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