Don’t Wait by Your Phone for Lower Bell-GTE Prices

The proposed $52.1-billion merger between Bell Atlantic Corp. and GTE Corp. would create the nation’s largest local phone company. But while the extra heft may speed advanced services, it is unlikely to give customers what they crave most--lower prices and more competition.

The deal, formally announced Tuesday, would bring together more than 63 million U.S. phone lines and operations in 81 of the country’s largest 100 markets. The combined company would offer local, long-distance, Internet, wireless and international service.

The proposed marriage of the Baby Bell that dominates much of the Northeast and the far-flung operations of Stamford, Conn.-based GTE is the latest in a string of massive telecommunications mergers over the last two years that have shaken up the balance of power in the phone business.

“There’s no question that this is pro-competitive and pro-consumer,” said Charles R. Lee, GTE chairman and chief executive.

But consumer groups fear the benefits of this and other telecommunications mega-mergers will bypass residential customers and thwart further competition in local service.

“There’s a notion that bigger is better, but there is no proof that it translates into something better for customers,” said Regina Costa, telecommunications research director at the Utility Reform Network, a consumer advocacy group in San Francisco.

The concern may be especially pronounced in California, where GTE is the second-largest carrier, serving about one-fifth of all phone customers.

State officials approved the 1997 merger of Pacific Telesis and SBC Communications Inc., but that deal has not yielded lower prices or residential competition. Instead, regulators have seen a series of proposed price hikes and complaints about aggressive sales practices.

And in New York, Bell Atlantic’s purchase of Nynex last year has failed to spur increased competition or lower prices for residential customers, said Mark Cooper, director of research for the Consumer Federation of America in Washington.

“What we learned is that we don’t get the competition they promised, and we may in fact get some nasty practices,” Cooper said. “Those are the lessons from the recent mergers, and they aren’t particularly positive.”

And the deal was met with some skepticism from Wall Street, where GTE shares plunged $2.69 to $53.06, while Bell Atlantic fell 69 cents to $44.31, both on the New York Stock Exchange. GTE shares now are 18% below their recent peak of $64.38. Bell Atlantic’s stock has fallen 16% from its recent peak.

But Ivan Seidenberg, chief executive of New York-based Bell Atlantic, argued that the union would produce “an enormous amount of reach and financial strength.”

“I think that with the muscle of this operation, GTE can do better and more in California than it might have otherwise done on its own,” he said.

Californians may well applaud that notion, since GTE has long been derided for its substandard customer service and higher prices.

“We’ve been a poor, poor second in years past,” GTE’s Lee said. “We care very much about our reputation, and about our quality . . . and we have made tremendous strides.”

Both executives stressed that a combined company’s wider reach and strength would allow it to roll out advanced services more quickly, and would clear the way for customers to get all their telecommunications services in one package on one bill.

Indeed, GTE is already offering some all-in-one packages in California and elsewhere. But critics don’t necessarily see that as a plus.

“Bundling is great, it’s convenient, but it’s still a monopoly,” said Gene Kimmelman of the Consumers Union. “We’d better preserve some regulation because the consumers are going to get hosed.”

GTE and Bell Atlantic executives said the new company, which has not been named, would be headquartered in New York and would have a board of directors and executive roster that draws from both companies.

Initially, Lee would be chairman and co-chief executive, while Seidenberg would serve as president and co-chief executive. Seidenberg would become the sole CEO in 2002.

The merged company would have combined revenue of $53 billion and 260,000 employees. Overseas operations would span 18 countries, and wireless customers would total nearly 11 million.

Under terms of the deal, described as a merger of equals, GTE stockholders would receive 1.22 shares of Bell Atlantic’s stock.

The two companies will need approval from shareholders, antitrust officials and regulators at the Federal Communications Commission and in the many states where the companies operate.

To win approval, the two companies may have to jettison GTE’s 675,000 Virginia and 632,000 Pennsylvania customers that lie in Bell Atlantic territory. GTE and Bell Atlantic executives said Tuesday that they also may have to spin off wireless operations serving about 1 million customers because of market overlap.

A California Public Utilities Commission official said he did not anticipate any problems with the deal.

“This doesn’t look like it should be an overly complex deal at first blush,” said Lester Wong, telecommunications advisor to PUC President Richard Bilas. “There aren’t any problems that step out at you immediately.”

FCC Chairman William E. Kennard said he is reserving judgment on the merger until he has a chance to review the deal.