[Category: Banking/Finance (tough choice, actually)]

From www.bloomberg.com dated Fri, 16 Jun 2000, 5:03pm EDT:

For educational/research purposes only.

Bell Atlantic Wins FCC Approval for $81 Bln GTE Buy (Update2)
by Jonathan Cox

Washington, June 16 (Bloomberg) -- Bell Atlantic Corp. won conditional U.S. approval to buy GTE Corp. for $80.8 billion, creating the nation's largest phone company with more than one- third of local lines and one-quarter of mobile customers.

The Federal Communications Commission cleared the purchase, proposed almost two years ago, when the companies crafted a complex plan to comply with rules limiting long-distance traffic. They also agreed to pay fines of more than $1 billion if they fail to meet targets for opening local-phone lines to competition.

The new company, to be known as Verizon Communications, will replace SBC Communications Inc. as the largest U.S. local carrier, with revenue of $58.5 billion last year and service in 31 states, Washington, D.C., and Puerto Rico. The FCC action is the last regulatory hurdle.

``There will be those that will claim this merger brings us closer to the re-emergence of Ma Bell, however my support is predicated on the applicants' enforceable commitments to open its traditional local markets to competitors invest in new markets, and accelerate deployment of broadband technologies,'' FCC Chairman William Kennard said.

Bell Atlantic-GTE marks the fourth major consolidation among the seven regional phone companies created in the 1984 breakup of the American Telephone & Telegraph Co. monopoly. Spurred by the 1996 Telecommunications Act that deregulated the industry, Bell Atlantic bought Nynex Corp. in 1997, while SBC acquired Pacific Telesis Group in 1997 and Ameritech Corp. last October.

The FCC acted after Bell Atlantic-GTE agreed to sell 90.5 percent of GTE's nationwide Internet unit, called Genuity Inc., to the public while it seeks long-distance authority in 12 states from Maine to Virginia, which is required for Bell Atlantic to sell Internet services within its region. The complex plan limits Verizon's ability to gain from Genuity's operations in states where Verizon lacks long-distance authority.

Some analysts say the decision could be challenged in court over issues related to Genuity Inc.

Shares of New York-based Bell Atlantic fell 1 1/2 to 55 1/16. GTE, based in Irving, Texas, fell 2 61/64 to 66 1/4.

Genuity IPO

Bell Atlantic said it plans to close the transaction this month, though such action can occur only after Genuity shares are sold to the public. Genuity, with roots dating to the first electronic-mail, expects to raise $2.6 billion from the initial sale, the largest ever for a U.S. Internet service provider.

The transaction won Justice Department approval 13 months ago after the companies agreed to sell overlapping wireless operations in 65 markets. The new company will have 63 million local phone lines, 25 million wireless customers and 260,000 employees. SBC, with operations in 13 states, had 205,000 at the end of last year.

The companies negotiated with FCC staff for more than eight months to resolve legal fears about GTE's Internet business. At issue is a section of the 1996 Telecommunications Act that bars large regional phone companies such as Bell Atlantic from owning more than 10 percent of any long-distance service, such as transporting Internet data, in their territories. Companies get approval to sell service after opening their markets to rivals such as WorldCom Inc.

Internet data transport is one of the fastest-growing segments in the telecommunications industry and the companies refused to completely give up the ``crown jewel.''

As a remedy, the companies agreed to sell 90.5 percent of Genuity, retaining 9.5 percent and an option to raise that stake to about 80 percent after winning long-distance authority in Bell Atlantic's states. The company won permission to sell service in New York in December and, with today's action, received up to six years to secure the remaining states.

Conditions

Bell Atlantic and GTE agreed to yield almost all control over Genuity's board, limit any profit if they sell the option to regain control and give up gains in Genuity's value based on traffic in states where Verizon lacks long-distance authority.

Still, rivals such as AT&T Corp. oppose Verizon's option to regain 80 percent of Genuity, saying it's unlawful and removes Verizon's incentives to open local markets. They had urged the commission to force a Genuity spinoff, giving Verizon first rights to buy back shares.

``The required spinoff makes this merger lawful,'' Kennard said.

Some analysts worry that strong criticism may lead an opponent of the Genuity plan to sue the FCC in court, further delaying the completion of the union announced on July 28, 1998.

Bell Atlantic-GTE tried to ease fears by agreeing to 25 conditions -- similar to those adopted by SBC-Ameritech last year -- to promote local phone competition. The companies said they would improve systems used by rivals, cut prices competitors pay to access pieces of the phone network or to resell service, compete for local customers in new markets and comply with a set of benchmarks to measure performance. If Verizon misses any targets, it would pay more than $1 billion in fines.

Still, even with worries about the Internet business, rejecting the transaction was not an option. The FCC was under intense pressure from Capitol Hill to approve Bell Atlantic-GTE, with the threat of pending legislation that would undermine the FCC's authority as a catalyst.

-- David L (bumpkin@dnet.net), June 16, 2000