Science Applications to Acquire Bellcore
San Diego defense contractor Science Applications International Corp. said Thursday as expected that it will acquire the research arm of the regional Bell telephone companies, Bell Communications Research Inc., for an undisclosed amount.
The bid by SAIC for the Baby Bell research unit, popularly known as Bellcore, is likely to touch off a major industry restructuring as the seven regional Bells redirect millions of dollars of research spending to competing laboratories and telecommunications developers.
Created as part of the 1984 breakup of AT&T; Corp., Bellcore was initially charged with assuring the continued technical integrity of the local telephone network as well as with providing R&D; services to its parent companies.
But some of the Baby Bells have long been unhappy about a sharing their R&D; entity. And the sweeping telecommunications law enacted last winter opened up the possibility of regional Bells invading one another’s territories, making joint research more problematic than ever.
“Today’s announcement is a logical extension to the sweeping changes in the telecommunications industry,” said Marty Kaplan, a Bellcore director who is president of Pacific Bell’s network services group. Once the Baby Bells fully embraced Bellcore, Kaplan continued, because they “shared a common purpose . . . and deployment needs for Bellcore’s products and services. This is no longer the case. Today, each of us is pursuing our own competitive strategies.”
Analysts speculate that SAIC offered about $700 million to buy Bellcore in hopes of utilizing the company as a way to wean itself from its government contracts and expand into the burgeoning private telecommunications and computer software development fields.
However, the deal faces reviews by regulators in California and eight other states, who will assess the deal’s impact on phone service. In addition, the two companies said they have notified the Justice Department of their plans but do not know if the deal will face antitrust scrutiny.
The deal casts an unusual public spotlight on the low-key SAIC, a closely held firm founded 27 years ago by a group of scientists.
SAIC has mushroomed into the nation’s largest employee-owned research firm, with 22,000 workers, and about 83% of its revenue come from federal government contracts.
SAIC has been on a big buying spree lately, spending $200 million to buy Aerospace Corp. of El Segundo earlier this year and snapping up nine companies last year, including Network Solutions Inc., a Herndon, Va., computer network firm that serves as the registrar for Internet addresses.
The sale of Bellcore, which has 5,600 employees and annual sales of more than $1 billion, is unlikely to have any immediate affect on telephone service. SAIC executives say they don’t plan any layoffs, although Bellcore would have to give up its name one year after the transaction is completed late next year.
Analysts say Bellcore will probably continue to play a critical role in helping the telephone industry deal with two big technological challenges.
Bellcore will be called upon to help the local phone companies cope with the threat of gridlock over the telephone network being created by exploding Internet data traffic. And the research firm will also be enlisted to find a cost effective technology to enable the Baby Bells to fulfill a federal mandate to allow phone users to keep their existing number when they switch local telephone carriers.
But beyond those two key areas, the Morristown, N.J., research firm will have to scramble to supplant an expected loss of Baby Bell business, which made up 80% of its revenue.
