News

GTE Deal May Not Affect Broadband

8/02/1998 8:00 PM Eastern

The latest telco merger -- Bell Atlantic Corp. and GTE
Corp. -- looks like a defensive play that shouldn't affect either company's
residential broadband plans, analysts said last week.

Both companies have been leaders in pushing
digital-subscriber-line technologies to carry high-speed data over copper.

GTE has said that it wants to offer DSL services from 300
central offices in 34 market areas in 16 states by the end of the year. And Bell Atlantic
has said that it plans to have 2 million phone lines in the Washington, D.C.; Pittsburgh;
Philadelphia; and northern New Jersey markets equipped for DSL service this year, adding
another 5 million lines in New York and Boston next year.

Analysts don't see any reason for those plans to
change. But there doesn't seem to be any reason for those rollouts to accelerate,
either.

The Yankee Group analyst Brian Adamik said he doesn't
see any acceleration of broadband access to the home through this deal.

"I see this as a typical merger in the industry, in
which companies are looking to develop scale and capabilities," he said.

And unlike SBC Communications Inc. and Ameritech Corp. --
which promised to compete for phone customers outside of their home territories if their
merger is approved -- Bell Atlantic and GTE seem content to serve their own, enlarged home
base. That base would span 38 states and 81 of the top 100 U.S. markets. The combined
company would be the biggest local-exchange carrier, with 63 million access lines and $53
billion in revenue last year.

Data is a key to the deal, though. Bell Atlantic CEO Ivan
Seidenberg, who will share chief executive duties with GTE chairman and CEO Charles Lee,
said his company needs GTE's more extensive Internet services to serve its big
corporate customers.

"We have a gap in our product set" that GTE,
which owns Internet provider BBN Corp., would fill, he said during a press conference when
the deal was announced last Tuesday.

Bell Atlantic and other Bells aspire to offer their own
long-distance calling services, too, but they are barred from that business, for now. GTE
has a strong long-distance business, with 2.2 million customers, nearly all within its
local territories.

The biggest key to the deal for Bell Atlantic could be
those long-distance customers, said telecommunications analyst John Bain of Hoak Breedlove
Wesneski & Co.

"It makes sense from a networking standpoint if Bell
Atlantic really wants to be a facilities-based long-distance carrier, and it wants to be
[one] nationwide," he said.

Otherwise, Bain said, he was "puzzled" about why
Bell Atlantic would want to merge with sprawling GTE, as its big clusters in Texas,
Florida and California are nowhere near Bell Atlantic's East Coast base.

In another difference between this deal and the
SBC-Ameritech merger, the latter has about 140,000 cable subscribers, mostly near Los
Angeles and Tampa, Fla., and it is launching a digital-wireless-video system in Hawaii.

But GTE has said that future wired-video deployments will
be over copper and fiber, using DSL. And Bell Atlantic said its wired delivery in the
future will be over fiber and copper. Both Bell Atlantic and GTE have distribution deals
with direct-broadcast satellite provider DirecTv Inc.

The deal wasn't immediately popular with investors.
Both GTE and Bell Atlantic shares dropped on the announcement, dragging other telco stocks
down, as well. GTE fell harder, although both recovered some value later last week. The
all-stock deal -- which would leave Bell Atlantic shareholders owning more than one-half
of the combined company -- valued GTE shares at less than market value. GTE shareholders
might have expected a premium in a sale.

Lee defended the stock-exchange ratio -- which would give
GTE holders 1.22 shares of Bell Atlantic for every GTE share -- as consistent with the
companies' trading patterns over the last year.

LDCs and some consumer groups blasted the merger, with the
former calling for more access to local customers and the latter complaining that
consolidation will lead to less competition. GTE and Bell Atlantic, of course, said the
merger would accelerate competition.

Federal Communications Commission chairman William Kennard
said in a prepared statement that the merger will be judged in part on whether it will
enhance telecommunications competition.

Albert Halprin, a former FCC Common Carrier Bureau chief
staffer and partner in Washington, D.C.-based law firm Halprin, Temple, Goodman &
Sugrue, said the two companies had so few overlapping operations that it would be hard to
predict that the government would block the deal. Sticking points could concern BBN's
operations in Bell Atlantic's territory and the portion of Qwest Communications
International Inc.'s long-distance capacity that GTE is buying, Halprin said. Some
GTE and Bell Atlantic wireless operations overlap, too.

At bottom, Bell Atlantic -- seeing possible
facilities-based competition from the likes of SBC-Ameritech and AT&T Corp. after it
buys Tele-Communications Inc. -- is getting bigger to survive, Halprin and other analysts
said.

"Bell Atlantic faces more people trying to eat its
lunch than any other carrier," Halprin added.

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