Bell Atlantic-GTE Plan New Test for Regulators

As if regulators here didn’t have their hands full already, the $55-billion blockbuster deal that Bell Atlantic and GTE will announce today is sure to keep them busy for many months to come.

“Expect regulators to have a heyday with this one,” said Jeffrey Kagan, president of Kagan Telecom Associates, an Atlanta-based telecommunications market research firm.

Since both companies offer local phone service--Bell Atlantic provides 40 million access lines while GTE provides 28 million--antitrust watchdogs will surely scrutinize the planned combination. Both firms provide service in Virginia and Pennsylvania.

The two companies may also be judged to have overlapping wireless phone operations, which together serve 10 million customers. Bell Atlantic’s joint venture with AirTouch Communications, called PrimeCo Personal Communications, competes with GTE’s cellular operations, which overlap primarily in Florida and Texas.

But the key regulatory roadblock is the landmark Telecommunications Act of 1996. Under that federal law, Baby Bells like Bell Atlantic must meet a 14-point checklist to ensure they have opened up their local markets to competition before they can offer long-distance service within their current local service areas. Although Bell Atlantic and others have tried to show their markets are open to competition, regulators so far have disagreed.

GTE is not subject to the same restrictions because it was never part of the Ma Bell phone system that was broken up by a consent decree in 1984. As a result, GTE is already offering long-distance service to 2 million of its local phone customers.

If the two companies are allowed to combine, regulators will face the complex task of trying to figure out how to segregate Bell Atlantic’s local business from GTE’s long-distance service, analysts said. Federal regulators are already trying to answer that question, thanks to the proposed $4.4-billion merger of Baby Bell SBC with Southern New England Telecommunications, which provides local and long-distance service in Connecticut.

Officials of some long-distance carriers as well as consumer group representatives vowed to lobby furiously against any merger deal on the grounds it would reduce competition.

But legal experts believe the Bell Atlantic-GTE deal has a fighting chance of passing muster with antitrust authorities, who have approved a string of blockbuster telecommunications deals in recent years. Those include Bell Atlantic’s $25.6-billion purchase of Nynex in 1997 and SBC’s $16.6-billion merger with Pacific Telesis Group the same year. Federal regulators are also believed to be close to approving the $37-billion deal between WorldCom and MCI Communications.

Bell Atlantic CEO Ivan Seidenberg “is among the best in dealing with regulators and reaching solutions that are not confrontational,” said Jack Clarke, the former general counsel for New York Telephone who helped negotiate Nynex’s merger with Bell Atlantic. “The FCC will have a good look at this. . . . But I don’t think the obstacles are that huge.”

This latest deal could provoke lawmakers to revisit the Telecommunications Act, which has caused great frustration among consumer advocates, industry officials and lawmakers. Many of them are disappointed that the law--intended to spark competition--has fueled a steady stream of multibillion-dollar phone company mergers.

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Bloomberg News was used in compiling this report.

* MAJOR MERGER: Bell Atlantic, GTE agree to combine in $55-billion deal. A1