Regional Bells May Spin Off Research Unit : Telecom: Inter-company strife has the firms pursuing different strategies. But Bellcore’s value is unclear.
Increasingly at odds over how best to capitalize on the booming telecommunications market, the seven regional Bell operating companies are considering spinning off their powerful jointly owned research arm.
The 10-member board of Bell Communications Research, better known as Bellcore, has discussed selling the nation’s largest research consortium in a public stock offering or letting private investors buy a stake, according to company and industry sources. But no decision has been reached by the board, which includes executives from each of the regional Bells as well as three from Bellcore itself.
There has been conflict over Bellcore almost since it was formed more than a decade ago as part of the breakup of the old Bell system. While AT&T; retained the bulk of the famed Bell Laboratories research organization, one part of Bell Labs was split off to provide research and technical support to the newly formed regional Bell companies and to assure the long-term technical integrity of the phone system.
But the consent decree governing the breakup also prohibited the regional Bells from designing or manufacturing telephone equipment, thus limiting Bellcore’s value and causing some of the Bells--notably US West--to complain almost from the start that Bellcore was costly and unnecessary.
Now Bellcore’s owners are pursuing widely divergent strategies, and they don’t necessarily want to be bound to partners not of their own choosing. The cash a Bellcore sale could raise, moreover, might be able to fund some of the new ventures--though it remains unclear who would be interested in buying into Bellcore or how much the operation might be worth.
The Baby Bells’ “ability to leverage off of Bellcore’s technical finds is somewhat limited” now because of the consent decree, said Paul Aran, a telecommunications analyst for Bear Sterns in New York.
Bellcore, which holds 439 U.S. patents, is also being pressured to relinquish perhaps its most crucial function: controlling the allocation of phone numbers, including area codes, five-digit long-distance carrier identification codes, some local phone numbers and codes for toll-free and 900-prefix information services.
The Federal Communications Commission is examining whether Bellcore should continue those functions or whether they should be handed off to a new, independent commission including representatives from local and long-distance companies.
Much of Bellcore’s research has focused recently on compression technologies that make it possible to squeeze more information and data through phone lines. That technology is beginning to pay dividends--but now the consortium’s owners are as likely as not to find themselves in competition with one another in providing new services that use the technology. Bickering among them is now commonplace, and is even being blamed for the collapse of a federal measure that would have granted their long-sought goal of entry into the long-distance business.
Consider:
* US West, which paid $2.5 billion last year for a 26% stake in Time Warner Entertainment and which has its own research unit, is aggressively pursing entertainment and multimedia technology. The company is said to be interested in offering its wares in rival Nynex’s lucrative New York market, where Time Warner operates a cable system serving millions of subscribers.
* Pacific Bell, which spun off its cellular phone unit this year, as well as Bell Atlantic have launched multibillion-dollar efforts to modernize their phone lines to provide movies, cable shows and other video fare. Meanwhile, Ameritech, which serves the Midwest, has concentrated on its bread-and-butter phone business while lobbying for entry into the long-distance phone business.
* BellSouth, whose $16 billion in annual revenue outstrips its rivals, recently joined with QVC to make an unsuccessful bid for Paramount Communications and has funded a huge modernization of its phone network.
“Their visions of the future are completely different,” said Betty Massick, a telecommunications analyst with S.G. Warburg & Massick. “I think they (the Baby Bells) are finding that it’s getting harder to operate a business like Bellcore where you always need a consensus” of opinion.
