Bell Atlantic, GTE to Merge in $55-Billion Deal

Bell Atlantic Corp. and GTE Corp. will announce today they have agreed to merge in a $55-billion stock deal that would create a telecommunications giant with about a third of all U.S. phone lines and customers in 40 states, including California, sources said.

The deal could benefit consumers by expanding the availability of all-in-one phone bills and creating a stronger rival to take on the telecommunications titans in long distance. But critics say a combination of two dominant local phone companies would thwart competition in their vast markets.

The planned merger also poses huge strategic and regulatory challenges and faces intense government scrutiny. Regulators in California, where GTE is the second-largest local phone company, are likely to review the deal.

New York-based Bell Atlantic and GTE of Stamford, Conn., will announce the all-stock transaction this morning. Officials at both companies declined to comment Monday on the news, although sources said the merger had won approval from both firms’ boards of directors.

It is the latest in a series of multibillion-dollar deals that continue to radically reshape the once-stodgy telecommunications industry by dramatically reducing the number of key players.

Consumer advocates expressed vehement opposition to the proposed merger.

“This deal creates an oligopoly in the extreme,” said Mark Cooper, research director for the Consumer Federation of America, a Washington, D.C.-based watchdog group. “None of these guys have opened up their markets, despite [years] of promises, and GTE has been among the worst.”

But one key Capitol Hill lawmaker signaled Monday that he favored the deal as a way of generating added competition for long-distance carriers.

“Is this [deal] bad for consumers?” asked Rep. W.J. “Billy” Tauzin, the Louisiana Republican who chairs the House telecommunications subcommittee. “Not if it provides consumers with more choices in the marketplace. And a combined GTE and Bell Atlantic will give long-distance carriers a run for their money.”

Under the 1996 Telecommunications Act, the Baby Bell local phone companies must open their home markets to rivals before they can enter the long-distance business. The Baby Bells have been confined to the local phone market since they were split off from AT&T; in 1984.

GTE, on the other hand, was never part of the Bell system, and therefore is not subject to the same constraints. GTE has been selling long-distance services to its own customers for more than a year.

The deal underscores just how crucial it is for phone companies to be able to offer “one-stop shopping”--especially the combination of local and long-distance service--to enter the top tier of global telecommunications firms.

The advantage for customers is having a single bill, and possibly lower prices. But the real cost savings is for the phone companies, which must pay interconnection fees to the local phone companies that serve customers at either end of a long-distance call. If they didn’t have to pay those access charges, they could save millions of dollars a year.

GTE already is realizing those cost savings with customers in its territory, but it is unclear whether the combined company would be able to offer the same deal to Bell Atlantic customers without approval from regulators.

Besides traditional long-distance phone service, Bell Atlantic has been anxious to provide interstate data services to business customers. Last week, the company asked the Federal Communications Commission to lift the long-distance ban so it could carry Internet and other traffic outside of local calling areas.

But local and long-distance service are only part of the bundle. Both companies also sell wireless phone service, paging services, Internet access and high-speed network services. GTE also offers cable television service, video networking, and Airfone service to place calls from airliners.

Sources said the deal represents a merger of equals, with GTE shareholders receiving stock in Bell Atlantic. However, some observers said the deal might value GTE shares below their Monday closing price.

Investors reacted coolly to the merger, which was widely rumored Monday. On the New York Stock Exchange, shares of GTE fell $2.19, to close at $55.75, while Bell Atlantic shares slipped 19 cents to end the day at $45.

Any combination of Bell Atlantic and GTE would need approval from the U.S. Justice Department, the FCC and many of the 40 states where GTE and Bell Atlantic operate local telephone lines.

GTE serves 28 states, including California, where it has more than 3 million customers, or 20% of the state’s phone users. Altogether, it provides nearly 28 million access lines around the country, mostly in suburban and rural areas.

Bell Atlantic, with its 1997 acquisition of fellow Baby Bell Nynex, serves states from Maine to Virginia, including the important markets of New York City, Washington, Philadelphia and Boston. More than a third of the headquarters of Fortune 500 companies are in Bell Atlantic’s territory.

Regulators are expected to focus on antitrust issues, including the combination of GTE’s 4.6 million wireless customers with Bell Atlantic’s 5.4 million wireless subscribers, which overlap in Florida and Texas. Bell Atlantic would also absorb GTE’s more than 1 million telephone subscribers in Virginia and Pennsylvania, unless regulators force the companies to divest GTE’s local phone operations in those states.

The merger also would draw international scrutiny because GTE owns the local telephone system in the Dominican Republic and is a majority investor in Venezuela’s national phone company.

Bell Atlantic is certainly one of the more aggressive phone companies. It helped touch off the current wave of industry consolidation by buying Nynex for $25 billion last year.

GTE has fared less well on the acquisition front. Although it struck a $616-million deal to buy Internet backbone provider BBN Corp. last year, its $28-billion bid for MCI Communications was topped by WorldCom’s $37-billion offer. GTE also discussed a possible merger with AT&T;, but those talks didn’t produce a serious deal.

Times staff writer Jube Shiver Jr. in Washington contributed to this story.

* TEST FOR REGULATORS: Legal experts believe the deal has a fairly good chance of passing antitrust muster. D3